Bayer-Monsanto

EU Hits the Pause Button

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A protester in Bonn vents against the merger. Source: Reuters

Two giant chemical companies already have been created by mergers in recent years. Faced with a third behemoth, Bayer’s $66-billion acquisition of US seed company Monsanto, the European Commission announced Tuesday that it is launching an in-depth investigation to determine the deal’s effects on farmers and consumers.

The EU’s competition commissioner, Margrethe Vestager, said in a letter that concerns have been raised about “potential negative effects of the merger on consumers and farmers through decreased competition, increased prices, less choice and less innovation as well as increased dependence on few global suppliers.”

As a result, Ms. Vestager said that in-depth investigation would last until at least January 8, 2018, torpedoing Bayer’s hopes of closing the merger by the end of the year.

“We need to ensure effective competition in these markets so that farmers have choice, can purchase products at competitive prices and companies continue to innovate and invest ”

Margrethe Vestager, EU Competition Commissioner

The EU has already approved two huge chemical mergers: Dow Chemical’s $130 billion tie-up with Dupont, and China National Chemical Corp’s $43 billion acquisition of Swiss seed company Syngenta.

The Bayer-Monsanto deal is even more controversial because it so heavily impacts farming, which is subsidized by Brussels. “Seeds and pesticides are crucial inputs for farmers and the starting point of the food supply chain,” Ms. Vestager said.  “We need to ensure effective competition in these markets so that farmers have choice, can purchase products at competitive prices and companies continue to innovate and invest in improved products.”

Bayer said in a statement that it had expected more review in Europe because of the size and scope of the merger, which will create the world’s largest seed company. “Bayer believes that the proposed combination will be highly beneficial for farmers and consumers, and will continue to work closely and constructively with the European Commission in its investigation,” the company said in a statement.

The closer scrutiny from the European Commission is likely to result in approval of the merger being dependent on more divestitures of businesses where the two companies have overlapping markets or a clear dominance of a product or country. The deal’s antitrust ramifications are also being investigated in the US.

23 p20 Bayer-Monsanto – Strong Business-01

Bayer has already been forced by South Africa to divest its Liberty Link seeds, which were developed to be resistant to the herbicide glufosinate. Monsanto is famous for its seeds that are resistant to herbicide, including its own weed killer Roundup, which contains glyphosate.

Another area of concern is chemical pesticide against mites, which have devastated honey bee populations on both sides of the Atlantic and which both companies produce. The two firms also have a considerable lead in so-called digital agriculture, which uses computer technology to determine what crops to plant and at what time, considering soil quality and weather patterns among other conditions.

European Commission observers said that if the companies are willing to make more divestitures in markets where they have overlapping products, the deal will likely be approved. “The commission is concentrating on the usual market share analysis in the product portfolio overlaps,” said Silvio Cappellari, a partner in the Brussels office of law firm Schilling, Zutt and Anshütz.

But the EU can also examine the effect that two vertically integrated players merging might have on a particular market. For example, if a European farmer formerly bought seeds from Monsanto, could he be obliged to buy pesticide from the newly merged company?

“Bayer has a higher hurdle than the companies that have previously been approved for their merger,” Mr. Cappellari said.

Both German chemical company BASF and Syngenta have expressed interest in buying the parts of Bayer or Monsanto that they are forced to spin off to meet antitrust requirements.

 

Till Hoppe reports on politics for Handelsblatt, with a focus on defense, domestic policy and cyber issues. Siegfried Hofmann is Handelsblatt’s chemical and pharmaceutical industries correspondent. To contact the authors: hoppe@handelsblatt.com, hofmann@handelsblatt.com.

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