Bayer, Monsanto merger faces review
Creation of agricultural behemoth raises international antitrust issues
Antitrust officials around the world who are already grappling with a wave of consolidation across agriculture will be forced to sort through a new layer of complexity now that Bayer AG has clinched a deal to buy Monsanto Co. to create a seed and cropchemical giant.
In a sign of just how protracted the review will be, the companies said they will seek approval in 30 jurisdictions around the world, including the U.S., European Union, Canada and Brazil, and don’t expect to close until the end of 2017.
EU Competition Commissioner Margrethe Vestager said the goal is to ensure farmers “enjoy affordable prices, choice and not to be locked in with just one provider.”
The US$66 billion tie-up — the biggest deal this year — follows months of mergers that are consolidating agriculture’s top seed and chemical producers into a knot of global powerhouses. While the firms say the overlaps between their businesses are minimal, their tie-up creates a large combined footprint in cottonseeds and cropchemicals, and may raise concerns that competition in research and development could suffer, reducing innovation, analysts say.
Antitrust officials will consider not just each deal individually, but how all the deals combined would impact markets, said Elai Katz, an antitrust attorney at Cahill Gordon & Reindel LLP in New York.
“Whenever we think about merger review it’s always about the future. You’re imagining what will the world look like after this merger,” Katz said. “Here you have to say what will the world look like after this merger, and this merger and that merger. That by definition complicates it.”
The biggest producers of seeds and chemicals have already transformed crop-production worldwide, with a new round of consolidation promising to further shape the global food supply.
Biotech crops, the result of decades of development and billions of dollars in investment, have increased farm productivity and in many cases led to lower prices for consumers. At the same time, critics say, crop diversity has declined and small-scale farms are disadvantaged.
The proposed combination of Bayer and Monsanto would create a seed and crop-chemical heavyweight with about US$26 billion in sales. The deal would give Germany’s Bayer, whose businesses include chemicals and pharma- ceuticals, a company that’s both the world’s largest seed supplier and a pioneer of crop biotechnology. The kind of genetically modified seeds that Monsanto started to commercialize two decades ago now account for the majority of corn and soybeans grown in the U.S.
Cottonseed, canola seed and glufosinate herbicide assets, with sales totalling about US$1.2 billion, may need to be divested, analysts at Sanford C. Bernstein & Co. said in a note.
“We expect significant antitrust and political hurdles and assign 50 per cent probability of deal completion,” the Bernstein analysts led by Jeremy Redenius said.
Investors appear to be fretting about the deal’s prospects for approval. Monsanto shares closed Wednesday at US$106.76, well below Bayer’s offer to pay US$128 a share.
Seeds and crop chemicals are major expenses for farmers, which could trigger political backlash against the deal. The Senate Judiciary Committee is planning to hold a hearing on mergers in the industry on Sept. 20, and several lawmakers warned about risks to competition.
“Iowa farmers who I’ve spoken with are worried about rising input costs, especially in an increasingly weak agriculture economy,” said Senator Chuck Grassley, an Iowa Republican. “Today’s announcement will only heighten those concerns.”
Senator Mike Lee, a Utah Republican who leads the Judiciary Committee’s antitrust panel, said the deal raises “serious antitrust issues” and could reduce consumer choice, while Vermont Senator Bernie Sanders called it a “threat to all Americans.”
“Any time you have this level of change, growers will be leery and concerned about what it’s going to look like tomorrow when it all shakes out,” said Kolby Nichol, vice-president of business development for Winnipeg, Man.-based Farmers Edge Inc., a precision agriculture data company.
In the U.S., the Justice Department, which shares antitrust enforcement with the Federal Trade Commission, will probably review the combination since it scrutinized other Monsanto deals.
The companies also said they plan to file with the Committee on Foreign Investment in the U.S., which reviews foreign acquisitions of U.S. businesses.
The Bayer-Monsanto agreement follows pending deals between Dow Chemical Co. and DuPont Co., and China National Chemical Corp.’s planned takeover of Syngenta. The rush to consolidate doesn’t just affect seeds and chemicals: Fertilizer makers Potash Corp. of Saskatchewan Inc. and Agrium Inc. have agreed to merge, while Deere & Co. is fighting to complete a deal with Monsanto that the U.S. Justice Department says would give the manufacturer a virtual monopoly for high-speed planters used on farms.
Mergers among agriculture firms over the last two decades have helped the biggest players sharply consolidate their control over markets, according to the Agriculture Department.
In crop seeds and biotechnology, for example, the four biggest companies had a market share of 54 per cent in 2009, the most recent data available, up more than double from 21 per cent in 1994.
The takeover would give the combined company 58 per cent of U.S. cottonseed sales, according to the most recent U.S. government data.
A more important issue for competition authorities may be the effect of the deals on R&D, particularly in advancing the biotechnology that has revolutionized farming by producing traits in seeds.
We expect significant antitrust and political hurdles and assign 50 per cent probability of deal completion.