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 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, the EU, Canada and Brazil, and do not expect to close until the end of next year.
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.”
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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 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 (R&D) could suffer, reducing innovation, analysts said.
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 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 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 commercialize two decades ago now account for the majority of corn and soybeans grown in the US.
Cottonseed, canola seed and glufosinate herbicide assets, with sales totaling about US$1.2 billion, may need to be divested, Sanford C. Bernstein & Co said in a note.
“We expect significant antitrust and political hurdles and assign 50 percent probability of deal completion,” Bernstein analysts led by Jeremy Redenius said in the note.
Investors appear to be fretting about the deal’s prospects for approval. Monsanto shares closed on Wednesday at US$106.76, well below Bayer’s offer of US$128 a share.
Seeds and crop chemicals are major expenses for farmers, which could trigger a political backlash against the deal. The US Senate Committee on the Judiciary is planning to hold a hearing on mergers in the industry on Tuesday, and several lawmakers have warned about risks to competition.
The US Department of Justice, which shares antitrust enforcement with the US 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 US, which reviews foreign acquisitions of US businesses.
Another focus of the antitrust review will be on the companies’ competing biotechnology that produces herbicide-resistant seeds, Bloomberg Intelligence analyst Jason Miner said.
The companies 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 said.
The looming consolidation risks undermining competition between firms to innovate and introduce new products, said the American Antitrust Institute, a Washington-based organization that is critical of further concentration in the industry.
Fewer competitors also mean reduced opportunities for the firms to collaborate in developing seed traits, institute president Diana Moss said.
“You want them maintaining independent R&D programs so they can compete hard to be first to market, and the mergers would eliminate that,” she said.
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