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Bayer-Monsanto Deal Faces Heavy Regulatory Scrutiny

Posted by BigHaat India on

Combining two of the world’s largest farm suppliers will test politicians wary of consolidation in the $100 billion global market.

To secure its deal to buy Monsanto Co. for $57 billion, Bayer AG will require approvals from a host of government regulators already scrutinizing a wave of consolidation in the agricultural sector.

While Monsanto’s seed-focused business doesn’t vastly overlap with Bayer’s pesticide-heavy agricultural franchise, combining two of the world’s largest farm suppliers will test the tolerance of farmers and politicians already wary of multibillion-dollar deals to merge other top players in the $100 billion global market for seeds and pesticides, while fertilizer producers also consolidate.

The companies have had “some initial contacts with regulatory agencies describing what this combination would be about,” Bayer Chief Executive Werner Baumann said on a call with investors after the deal was announced. “We have so far received encouraging feedback but nothing beyond that.” He said regulatory filings will now begin.

Monsanto CEO Hugh Grant said on the call that between the two companies, “the overlap is quite small, with a few obvious exceptions.” One area of overlap frequently cited as possibly prompting divestitures is seeds. “We feel quite good” regarding regulatory approval, Mr. Grant said.

A spate of deals announced over the past 10 months would place more than 80% of U.S. corn-seed sales and 70% of the global pesticide market under just three companies, sparking fresh concerns about the pricing power of the sector’s largest players as low crop prices are squeezing farmers’ incomes.

The European Union, which in August opened an investigation into the merger between rival seed suppliers Dow Chemical Co. and DuPont Co., had signaled it would closely scrutinize a Bayer-Monsanto deal months before the companies agreed to terms.

Also under scrutiny is the planned sale of Swiss pesticide and seed maker Syngenta AG to China National Chemical Corp., a state-owned company that also maintains a big generic crop chemicals business. A quarter of Syngenta’s sales come from North America.

Bayer agreed as part of Wednesday’s deal to pay Monsanto $2 billion if it fails on regulatory grounds.

Bayer plans to pay $128 a share for Monsanto in an all-cash transaction, up from its latest offer last week of $127.50 a share, the companies said. The price represents a roughly 5% increase over Bayer’s original offer in May of $122 a share. Including debt, the deal is valued at about $66 billion.

EU Antitrust Chief Margrethe Vestager, responding to concerns raised by some European lawmakers, had said in June that her agency would look into the potential impact on seed prices and availability, as well as crop research and development.

Ms. Vestager said the EU would take into account the fact that several mergers in the sector would be taking place at the same time. Officials have said the mergers could place a significant share of the corn-seed and pesticide market in the hands of just the three companies.

A spokesman for the European Commission declined to comment on Wednesday.

Meanwhile, fertilizer giants Agrium Inc. and Potash Corp. of Saskatchewan Inc. this week also agreed to merge.

The deal boom in the agriculture sector has some farmers concerned that reduced competition will lead to higher prices, and in August U.S. Senator Charles Grassley (R., Iowa) announced a hearing set for Sept. 20 to question seed-industry executives and experts. “In most instances when you have less competition, prices go up, and consumers pay more,” Mr. Grassley said.

Some analysts expect Bayer may need to divest some businesses in which both companies compete, such as cotton and canola seed.

Bayer and Monsanto also run competing franchises in herbicides designed to kill an array of weeds. Monsanto sells annually about $4.8 billion worth of its trademark herbicide glyphosate, marketed as Roundup, while Bayer maintains a smaller business in a rival chemical, glufosinate. Both companies have developed genes enabling crops to survive those sprays.

In the case of divestitures, Bayer may find an ally in German rival BASF SA, which hasn’t joined its peers in the consolidation wave, but will look at opportunities to pick up businesses they have to sell. “We are looking at antitrust issues to see if we can help,” Markus Heldt, president of BASF’s agricultural division, said earlier this month.

Source:

http://www.wsj.com/articles/bayer-monsanto-deal-faces-heavy-regulatory-scrutiny-1473855922

 


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