Concerns rise on Monsanto, Bayer tie-up
Global antitrust and political hurdles expected for merger in agriculture sector, writes
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 has clinched a deal to buy Monsanto to create a seed and crop-chemical 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 US, EU, Canada and Brazil, and do not expect to close until the end of 2017.
EU Competition Commissioner Margrethe Vestager says the goal is to ensure farmers “enjoy affordable prices, choice and not to be locked in with just one provider.”
The $66bn tie-up — the biggest deal in 2016 — follows months of mergers that are consolidating agriculture’s top seed and chemical producers into a knot of global powerhouses. While the companies say the overlaps between their businesses are minimal, their tie-up creates a large combined footprint in cottonseeds and crop-chemicals, 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, says Elai Katz, an antitrust attorney at Cahill Gordon & Reindel 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 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 have 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 $26bn in sales. The deal would give Germany’s Bayer, whose businesses include chemicals and pharmaceuticals, a company that is both the world’s largest seed supplier and a pioneer of crop biotechnology.
The kind of genetically modified seeds that Monsanto started to commercialise two decades ago now account for the majority of maize and soybeans grown in the US
Cottonseed, canola seed and glufosinate herbicide assets, with sales totalling about $1.2bn, may need to be divested, analysts at Sanford C Bernstein say. “We expect significant antitrust and political hurdles and assign 50% probability of deal completion,” the Bernstein analysts say.
Investors appear to be fretting about the deal’s prospects for approval. Monsanto shares closed Wednesday at $106.76, well below Bayer’s offer to pay $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 Tuesday and several legislators have 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,” says Senator Chuck Grassley, an Iowa Republican.
Senator Mike Lee, a Utah Republican who leads the judiciary committee’s antitrust panel, says the deal raises “serious antitrust issues” and could reduce consumer choice, while Vermont Senator Bernie Sanders calls 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,” says Kolby Nichol, vice-president of business development for
Any time you have this level of change, growers will be … concerned about what it’s going to look like tomorrow when it all shakes out
Winnipeg, Manitoba-based Farmers Edge, a precision agriculture data company.
In the US, the justice department, which shares antitrust enforcement with the Federal Trade Commission, will probably review the combination since it scrutinised other Monsanto deals. The department plans to file with the committee on foreign investment in the US, which reviews foreign acquisitions of US businesses.
The Bayer-Monsanto agreement follows pending deals between Dow Chemical and DuPont, and China National Chemical Corporation’s planned takeover of Syngenta.
The rush to consolidate does not just affect seeds and chemicals: fertiliser makers Potash Corporation of Saskatchewan and Agrium have agreed to merge, while Deere & Co is fighting to complete a deal with Monsanto that the US justice department says will give the manufacturer a virtual monopoly for high-speed planters used on farms.
“Economists have been raising questions about competition economy-wide — whether there have been too many mergers and acquisitions, whether companies are getting too big, whether they’re not being competitive enough. We see these same sort of trends happening in agriculture,” US agriculture department economist Keith Fuglie says.
Mergers among agriculture firms over the past 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% in 2009, the most recent data available, up more than double from 21% in 1994.
The takeover would give the combined company 58% of US cottonseed sales, according to US government data, which means it is probably an area they will have to address by offering to sell assets.
Monsanto became the largest US cottonseed company in 2007 with its purchase of Delta & Pine Land for $1.6bn. To satisfy antitrust concerns, St Louis-based Monsanto agreed at the time to sell its Stoneville Pedigree Seed unit, which had 12% of US cottonseed sales, to Bayer for $310m. It also agreed to divest its smaller NexGen cottonseed brand.
Another focus of the antitrust review will be on the companies’ competing biotechnology that produces herbicideresistant seeds, says Jason Miner, a Bloomberg Intelligence analyst. The firms also compete in selling herbicides, though Monsanto’s herbicide — Roundup — is a commodity product with lots of generic competition from other suppliers, while Bayer produces more advanced weed-killer, he says.
In crop chemicals like herbicides, the companies created by the Syngenta-ChemChina and Bayer-Monsanto mergers would control more than half the market, according to 2015 data compiled by Bloomberg.
For maize seeds, a combined Dow and DuPont along with Monsanto would control nearly three quarters of the US market, while in soybeans, they would hold about 65%, according to 2015 data from Verdant Partners, an Illinois based agriculture consulting firm.
A more important issue for competition authorities may be the effect of the deals on research and development, (R&D) particularly in advancing the biotechnology that has revolutionised farming by producing traits in seeds.
Monsanto, Bayer, Dow, DuPont and Syngenta dominate this market, says Dean Cavey, a managing partner at Verdant, which has done work for the companies doing deals.
The looming consolidation risks undermining competition between companies to innovate and introduce new products, according to of the American Antitrust Institute, a Washington-based organisation that is critical of further concentration in the industry.
Fewer competitors also mean reduced opportunities for the firms to collaborate in developing seed traits, says AAI president Diana Moss. “You want them maintaining independent R&D programmes so they can compete hard to be first to market, and the mergers would eliminate that.”
Cavey at Verdant disagrees. While the proposed mergers will reduce the number of leading R&D spenders, he says, combining will give the companies the resources to increase spending on the innovations that benefit farmers.
“The only way innovation is going to take place is by spending lots of money, and that has to be by these companies,” he says. “They’re the only ones that can afford it.”