S&W Seed Company to Acquire DuPont Pioneer Alfalfa Research and Production Assets

S&W Seed Company, the largest ‘non-dormant’ alfalfa seed company in the world, and DuPont Pioneer, the world’s leading developer and supplier of advanced plant genetics recently announced the acquisition by S&W of all of DuPont Pioneer’s alfalfa production and research facility assets, as well as all conventional (non-GMO) alfalfa germplasm, for a purchase price of up to $42 million.

The purchase price consists of $27 million in cash (payable at closing), a promissory note payable by S&W to DuPont Pioneer in the principal amount of $10 million and a potential earn-out payment of up to $5 million based on sales of the acquired germplasm in the three-year period following the closing. The promissory note bears interest at 3% per annum (paid annually) and is payable on December 31, 2017. The sale is expected to be completed on December 31, 2014, and is conditioned on S&W obtaining sufficient additional financing (on terms and conditions acceptable to it) to consummate the purchase and other customary closing conditions. There can be no assurances that S&W will be successful in securing financing.

As part of the acquisition, S&W will acquire:

• Over 15 DuPont Pioneer alfalfa seed varieties in the market today, including varieties designed for high yields, forage quality, leafhopper resistance, and stem nematode resistance;
• More than 60 varieties that are currently in DuPont Pioneer’s development pipeline;
• A seed cleaning and production facility located in Nampa, Idaho and research facilities in Arlington, Wisconsin; and
• 31 employees from the alfalfa group at DuPont Pioneer.

With the acquisition, S&W Seed Company will be the global leader in alfalfa seed, with unrivaled research and development, production and distribution capabilities. S&W will span the world’s alfalfa seed production regions with operations in the San Joaquin and Imperial Valleys of California, five other US states, Australia, and three provinces in Canada, and will sell its seed products in more than 25 countries around the globe.

Mark Grewal, chief executive officer of S&W Seed Company commented, “The acquisition of DuPont Pioneer’s alfalfa seed operation will create an unparalleled leader in the alfalfa seed industry. We will benefit from one of the most compelling growth opportunities in agriculture, the desire for increased protein in a growing global population. The combination of operations brings together the largest ‘non-dormant’ alfalfa seed company in the world and one of the leaders in the ‘dormant’ alfalfa seed market. This acquisition provides us with diversified worldwide production and distribution capabilities, industry-leading research and development capabilities, along with a strong grower base and dedicated customers. Incorporating dormant varieties into our production base and sales channels is a natural fit and progression for our business, and this acquisition gives us the personnel and expertise to accelerate our growth in all dormancies going forward.”

Possible Future Acquisition of GMO Germplasm

S&W has also agreed, subject to the satisfaction of certain conditions, to purchase DuPont Pioneer’s GMO alfalfa germplasm and related assets for an additional $7 million in cash. The closing for the second acquisition, if all conditions to closing are satisfied, will occur on December 29, 2017. If the second acquisition is completed, the total purchase price for both acquisitions would be up to $49 million.

Exclusive Distribution Agreement

Concurrently with the closing of the acquisition, S&W and DuPont Pioneer are entering into exclusive alfalfa seed distribution and production agreements under which, subject to certain exceptions, S&W will be DuPont Pioneer’s sole supplier of alfalfa seed through 2024.

Under the agreement, DuPont Pioneer will continue to sell S&W-supplied, proprietary Pioneer® brand alfalfa varieties to customers for at least the next 10 years, through Pioneer’s extensive network of exclusive sales representatives. The agreement provides S&W with a strong and reliable customer for a large portion of the new S&W seed production, and provides DuPont Pioneer customers with the same leading alfalfa seed varieties that they have relied on for years.

Alfalfa is primarily used as a high protein “forage” for livestock, including dairy and beef cattle, and is also used in certain fuel applications. The market for alfalfa hay and haylage in the United States is approximately $11.3 billion annually, and has grown at approximately a 4.8% CAGR over the last 10 years. The newly acquired alfalfa business is expected to contribute approximately $26 million of incremental annual revenues in FY ’15 and approximately $40 million of incremental annual revenues in FY ’16.