In spring of 2016, there was alarm in the agrochemical sector. Three of the largest corporations in the industry had all laid plans on the table for major mergers. With only six large suppliers, the plant protection product and seed production industry was already highly concentrated. At the end of the new wave of mergers, there would only be four large suppliers.
Environmentalists and consumers railed against the plans. Competition experts warned of the monopolized market about to be created. Investors had their doubts too, more or less convinced that neither the E.U.’s antitrust authorities or the U.S.’ antitrust authorities would tolerate these mega mergers.
A year later, it looks like the opposite is true. E.U. authorities recently gave the green light to the merger of the two U.S. chemical companies, Dow Chemical and Dupont. Together, the two create a new global market leader with a $17 billion turnover. Although a decision by U.S. antitrust authorities is still pending, they are not expected to stand in the way either.
This new focus on ensuring that innovation continues is the right one. It allows antitrust authorities to take a fact-based approach.
The U.S. has already given the nod to the plans for the second largest agro-chemicals merger. The $43 billion takeover of Swiss company, Syngenta, by the Chinese state-owned company, ChemChina, is close to being finalized.
This raises a couple of questions. Were the antitrust authorities lax, were they lulled into thinking everything was all right? Didn’t they hear the protests of those who feared the power of the new companies? Or did they just ignore them?
In both cases, the answer is no. The fact is the Brussels watchdogs have shown a new approach in checking these major mergers. And it seems this is a positive sign for the industry’s third mega project: Bayer’s takeover of Monsanto.
The competition authorities are under massive public pressure when they deal with agrochem corporations. The topic is a sensitive one and the subject of much debate. Farmers’ associations, NGOs, and politicians see the new huge agrochem corporations as many-tentacled creatures that seek to dominate and control the world’s food supply.
Antitrust authorities should take these fears seriously, but they cannot let themselves be guided by it. Their one and only job is ensure that competition doesn’t die out, even in such intensely compacted industries as this, so customers will continue to be able to choose from a large range of products.
The E.U. antitrust authorities have taken a new path. They analyze how much innovation will exist in the sector following any merger. It isn’t sheer size that takes precedence, but the possibility of retaining, or even promoting, diversity, and with it, competition around price and product.
At the same time, the commission is in no way being too gentle. At first, they told Dow and Dupont no, because the U.S. companies wanted to reduce costs of research and development. Now Dupont is being forced to give up a large part of its plant protection products business, including researchers and laboratories. The E.U. is making a similar case in conditions it is setting for the Syngenta and ChemChina merger.
This new focus on ensuring that innovation continues is the right one. It allows antitrust authorities to take a fact-based approach to examining major mergers that they would previously have been forced to reject, if judged only on criteria like size and market power.
Competition isn’t promoted, or curbed, by the size of a company alone. Even within the small group of agrochem suppliers, competition is still strong. Indeed, oligopolies can be highly competitive.
In this respect, the E.U.’s new approach could also be useful when examining mergers in other industries in the future. And they will undoubtedly come – because the pressure to consolidate is so pronounced in many industries. The antitrust authorities will not be able to hold this back, if size alone is used as criteria to decide.
This new perspective is a positive signal for Bayer’s purchase of Monsanto, which, if it allowed to go ahead, will create the number one in the agrochem sector, with $24 billion in sales. The new attitude even plays into Bayer’s hands since the company wants to combine its know-how in plant protection with Monsanto’s knowledge of seeds and is hoping to derive new ideas from it.
Since there is hardly any overlap there, the research budget won’t be cut. From the beginning, the company has been using the argument that the two firms will in fact have more power for innovation, when merged. However there is no question that Bayer will be forced to give up part of its business, and that this could easily amount to several billion dollars’ worth.
It is a sign that Brussels gave the nod to the merger of Dow and Dupont, which used that same logic as the Bayer-Monsanto deal. Right now, it seems that Bayer’s big project won’t fail on account of the competition watchdogs.
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