Agrochemicals Merger

Politics Clouds Bayer's Monsanto Bid

U.S. Republican presidential candidate Donald Trump speaks at a campaign stop in Spencer, Iowa December 5, 2015. REUTERS/Mark Kauzlarich
Political observers see Donald Trump opposing the Bayer-Monsanto merger, to drum up votes in key farming states.

When Werner Baumann, the boss of German chemicals giant Bayer, announced his plans last month to acquire U.S. rival Monsanto –  just three weeks into his new job – he knew the deal would face intensive scrutiny by U.S. and European regulators.

What he may have overlooked, however, is the political noise the move could create in a U.S. presidential election year.

A number of politicians in big farming states such as Iowa and Nebraska appear worried about the possibility of nearly 40 percent of U.S. corn and soybean seeds being sold by non-U.S. companies if Monsanto becomes German-owned.

And many are particularly concerned about a huge new titan in the agricultural business dominating the competitive landscape.

“If they are going to approve the merger, they had better be prepared to say exactly why this merger should be approved.”

Peter Carstensen, University of Wisconsin Law School

The chairman of the U.S. Senate judiciary committee, Senator Charles Grassley from Iowa, has already publicly questioned the wisdom of the hookup, which would further reduce the number of big seed producers and give Bayer control of many seeds.

“When the farmer screams to Senator Grassley, that gets on the radar,” said Peter Carstensen, an emeritus professor of law at the University of Wisconsin Law School in Madison and a former federal attorney. “It gets the enforcers focused. They know that they are not going to be criticized (by Congress) if they go ahead and enforce the antitrust laws. If they are going to approve the merger, they had better be prepared to say exactly why this merger should be approved.’’

Bayer’s $62 billion (€55.6 billion) offer for Monsanto is a big deal in many respects. It’s the largest takeover bid by a German company ever, dwarfing the $36 billion automaker Daimler spent on Chrysler in 1998. It’s also the largest all-cash acquisition offer on record.

Bayer hopes to unite Monsanto, the world’s biggest producer of genetically modified crop seeds, with its own seed and pesticide operations to form a one-stop-shop for farmers with $67 billion in combined sales. Together, they would control 28 percent of worldwide pesticide sales, 36 percent of the U.S. corn seed market and 28 percent in soybeans, according to financial services firm Morgan Stanley.

The offer, however, comes on the heels of two other giant agriculture deals that would put a significant share of the seed and pesticide market in the hands of a mighty few.

If all the deals are approved, the number of major companies supplying farmers with seeds and chemicals would shrink from six to three. In addition to the Bayer deal, U.S. firms Dow Chemical and DuPont announced a $130 billion merger last December, and government-owned ChemChina has launched a $43 billion takeover of Swiss pesticide and seed company Syngenta.

Monsanto Bayer Syngenta DuPont BASF 20 p6 The Billion Dollar Agrochemical Business 2-01

Consolidation of that magnitude worries farmers who fear paying more for products and having less choice. Because crop prices have nearly halved over the past few years, helping shrink farmers’ incomes even further, many feel particularly vulnerable to higher prices for essential materials such as seeds.

There are also mounting concerns about control and ownership of the American food supply amid the “merger mania” in the U.S. agricultural chemicals and seed sector, according to Chandler Goule, senior vice president of the National Farmers Union, which represents the interests of family farms and ranches. Many Americans, he told Handelsblatt, are worried about the control and ownership of supply being in foreign hands.

“It is going to become a serious problem,” he said.

With an eye on the rising consolidation in the sector, President Barack Obama has asked his competition watchdog to become more active than in the past.

So far, none of the presidential candidates have made statements about the Bayer-Monsanto merger. The campaign offices of the Democratic contenders Hillary Clinton and Bernie Sanders and that of the Republican Donald Trump did not respond to repeated requests by Handelsblatt.

Washington insiders expect legislators in Congress to start speaking out against the merger when the congressional recess ends next week – and for presidential candidates to take a position.

Mr. Carstensen doubts Ms. Clinton would block the deal, wary of angering European regulators who could thwart U.S. takeovers across the Atlantic. But he doesn’t rule out opposition by Mr. Trump.

The presumptive Republican nominee recently threatened to use U.S. antitrust laws to pursue Amazon founder Jeff Bezos, the owner of the Washington Post, because of the newspaper’s critical coverage of his campaign.

“With Mr. Trump, it’s very hard to tell what he might do,” Mr. Carstensen said. “He would be, I think, more likely to do something like, ‘no, you can’t buy Monsanto.’”

Whether anyone at the Justice Department will listen is another story.

“Politicians in Congress, and perhaps even running for president, may well complain about a foreign company buying a great American one,” said David Evans, a professor of antitrust law and economics at the University of Chicago and head of the Global Economics Group, which provides expert help on litigation and regulation issues. “That political noise, even when it gets loud, hardly ever influences the antitrust enforcement agencies. They are used to it and pretty much ignore it.”

William Kovacic, a law professor at George Washington University agrees. “I do not expect that the election campaign, or the outcome of the election, will affect the DOJ’s review of this transaction – no matter how acrimonious or clamorous the campaign turns out to be,” he told Handelsblatt Global Edition. “The Justice Department has extensive experience reviewing high profile mergers amid a contentious presidential election campaign, and its history has been to put aside the noise and do its job.”

“If a Chinese firm was the purchaser, the deal might be scrutinized more closely for technology transfer issues.”

Michael Leroy, Law Professor at the University of Illinois

Even though the Bayer-Monsanto blockbuster deal is certain to receive a thorough review by U.S. antitrust regulators, some see the German company having a few plus points. It has been operating in the United States since the late 1800s, when it began selling its trademark medication, aspirin. Bayer has 40 subsidiaries operating in nearly 20 states.

“If a Chinese firm was the purchaser, the deal might be scrutinized more closely for technology transfer issues,” said Michael Leroy, a law professor at the University of Illinois. “The fact that it is a German purchaser should raise no red flags at all.”

Mr. Leroy added that he was certain, “Bayer did its homework on this issue and concluded that the U.S. would not block it.”

In Europe, however, the company could face some resistance. A number of European countries, including Germany, have sounded alarms over the use of genetically modified crops.

Comact, a left-leaning German activist group, referred to the Bayer-Monsanto deal as a “monster” merger that would have too much control over the food supply and threaten the environment.

 

John Blau is a senior editor at Handelsblatt Global Edition. Kevin O’Brien is editor in chief of Handelsblatt Global Edition. Moritz Koch, Handelsblatt’s Washington correspondent, contributed to this story. To contact the editors: blau@handelsblatt.com, obrien@handelsblatt.com and koch@handelsblatt.com

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