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Closing Bell: Monsanto


Conventional wisdom says big tech acquisitions don't work. Well, somebody forgot to tell Oracle (ORCL) Chief Executive Lawrence Ellison. In the first quarter to include full results from Oracle's $10.3 billion acquisition of PeopleSoft, applications license revenues were up 52%. The numbers, reported on June 29, show the No. 2 software maker has pulled off a smooth merger.

While Ellison downplayed dealmaking in a June 29 interview with BusinessWeek, his strategy is clear: Buy software companies with narrow margins but rich maintenance revenue streams, add them to Oracle's portfolio, and strip out costs.

Indeed, signs point to more deals ahead -- perhaps even rival Siebel Systems. (SEBL) (Ellison declines to comment.) With $5 billion in the bank, Oracle certainly has the wherewithal. Plus, it just hired as its chief financial officer Greg Maffei, who oversaw a string of 21 acquisitions during his two-year tenure at Microsoft (MSFT). If Ellison can make other deals work the way he has with PeopleSoft, Oracle will be on a roll.

After two months of damning headlines and government probes into its accounting and the conduct of former CEO Maurice Greenberg, American International Group (AIG) finally had some good news on June 28. Net income in the quarter was $3.7 billion, up 44% from $2.6 billion in the first quarter of 2004. Investors greeted the news by bidding shares up $3, to $58. The results reflect strong life insurance operations in Asia, good returns on invested cash, and disciplined underwriting. The numbers were the first since AIG restated five years of results in May, chopping $1.3 billion off 2004 net income and $2.3 billion from shareholder equity.

Life in the brutally competitive North American car market is about to get tougher. Toyota Motor (TM) plans to open a new $650 million compact sport-utility plant in Woodstock, Ont., in 2008. The news follows Toyota's year-to-date sales gain of 10%, which has pushed its U.S. market share up 1.3 points, to 13.3%. Toyota will use the plant to build the popular RAV4, currently made in Japan. With oil prices flirting around $60 a barrel, boosting production of smaller sport-utes looks like a smart move. Industry sources also believe that Toyota may also build Scion cars at the new plant. When it opens, the plant will increase Toyota's North American production capacity by 100,000 vehicles, to 1.76 million.

Johnson & Johnson (JNJ) has a tough call to make. On June 24, medical device maker Guidant (GDT) announced problems with one of its implantable cardiac defibrillators and warned physicians to stop implanting those devices until the error is corrected. The latest problem, which comes on the heels of recalls of some other products, affects $800 million of Guidant's $3.8 billion in annual sales. Now J&J must decide what to do about its planned $25 billion deal for Guidant. If J&J walks -- which is seen as unlikely -- it loses access to the fast-growing defibrillator market and some key cardiac stents. That's why most expect J&J to go ahead at a lower price, though it will now be buying a tarnished franchise.

The "quiet period" ahead of initial public offerings is about to get noisier. The Securities & Exchange Commission, in a sweeping overhaul of stock issuing rules on June 29, said companies could distribute materials beyond their official prospectus and hold Web-based "road shows" for potential investors. Also O.K.: press interviews, like the Playboy chat with Google's founders that nearly derailed that company's 2004 IPO. Big companies also get faster registration for stocks and bonds. The reform of the 1933 Securities Act passed on a 5-0 vote. By contrast, at the same meeting a contentious mutual-fund rule was reapproved by a 3-2 vote.

-- The Chicago Board of Trade said it has gotten "expressions of interest" in a merger.

-- Jarden (JAH) will acquire small-appliance maker Holmes Group for $625 million.

-- TiVo (TIVO) Vice-Chairman Tom Rogers will become president and CEO.

Shares of Monsanto (MON) got crimped by 7% on June 29, to $63, after the St. Louis agricultural company and pesticide maker announced net income in the third quarter fell 81%, to $47 million, due to write-offs from its recent acquisitions of two seed manufacturers.


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