4.12 Megamergers in Ag Industry on Track, Likely Headed for Approval in 2017
By Tony Dreibus
Despite scrutiny from lawmakers on both sides of the pond, it appears that several megamergers in the agriculture space are still on track and likely will be approved this year.
The merger between Dow Chemical and DuPont, formally known as E.I. du Pont de Nemours and Co., is reportedly close to receiving approval from regulators in the European Union after the companies, which have a combined value of about $130 billion, agreed to divest some of their businesses. The European Commission late last year requested information regarding the mashup between the companies, and went so far as to delay a review of the transaction more than once, but the most recent concessions seem to have paid off.
The Dow-DuPont deal is the largest of several mergers or acquisitions currently working their way through anti-trust scrutiny in several countries. ChemChina is in the process of purchasing Syngenta for $43 billion. German company Bayer AG in September said it was buying U.S.-based Monsanto in a deal valued at the time at $74 billion.
While the transactions would combine some of the largest players in the ag space, ruffling the feathers of those who want to see anti-trust regulations enforced, it seems that there’s little risk that they won’t go through at some point as the European Union is offering little resistance and President Donald Trump’s pro-business administration probably won’t object.
“I’ve been hopeful the Dow-DuPont merger might be objected to by the EU, but the most recent news I’ve seen would suggest that’s not the case,” said Peter Carstensen, an emeritus professor of law at the University of Wisconsin who specializes in anti-trust law, with a sub-specialty in agricultural competition policies. “The Trump administration is opposed to anti-trust as it’s seen as part of government regulation. Some of the key people involved in the transition … have the view of, ‘let’s not get involved unless the world is coming to an end, and even then we can do a partial divestiture to get approval.’
FARM GROUPS WEIGH IN
The megamergers have caught the attention of farm groups throughout the U.S. who fear that fewer competitors selling everything from fertilizer to seed to chemicals will mean higher prices for producers. Some 325 farm and environmental groups sent a letter earlier this month to newly appointed Attorney General Jeff Sessions expressing their concern about the proposed mergers.
Chip Bowling, the president of the National Corn Growers Association (NCGA), said in a letter last year to the Justice Department’s anti-trust division that while his organization doesn’t see a big impact on corn herbicide and insecticide prices, the cost of seed may rise.
The NCGA cited industry estimates that show a cost to launch a new seed trait at $136 million and a time frame of 13 years. New crop-protection chemical registrations cost about $300 million, on average.
That kind of capital and time investment likely will deter companies from pursuing new technologies, especially in the face of less competition, leading to less innovation – giving farmers fewer tools to combat weeds and insects – and higher costs, the organization said.
While the cost of research and development may be rising, input companies, whether they want to or not, will be unable to pass those costs to producers, said Dennis DeLaughter, who farms soybeans, rice, and cotton in Texas. They may try, but with low prices for corn, beans, and wheat, growers won’t have the money to pay more for inputs, he said. Instead of facing higher prices for seed, fertilizer, and herbicide, some farmers may hang up their boots and head to town.
“The market won’t allow it if they try to take prices up much,” DeLaughter said. “It’s tough right now. If we don’t see an increase in the price of corn or beans or rice, we’ll see the lower tier of farmers – the younger guys – quit and go somewhere they can make money. There’s no more blood in this turnip.”
Dow and DuPont have said the deal would do exactly the opposite – create competition and lower prices. It has estimated cost savings of about $3 billion and about $1 billion in growth synergies. Its combined strength will allow it to increase research and development, bolstering innovation, and creating new products that will benefit farmers.
In fact, the National Corn Growers Association said in its analysis of the transaction that it too sees improved competition as the resulting company would compete with Monsanto in the seed industry. The association said it sees “additional potential benefits” from the merger including greater access for farmers to a wider range of seed products from the combined company.
“The Dow -D uPont combination brings together Dow’s trait development expertise with Pioneer’s germplasm and distribution network, making the new company a far stronger competitor with the current industry leader,” the NCGA said. “While we are concerned about the loss of a competitive market player within the corn seed industry, at the same time, we acknowledge that true competition isn’t based solely upon the number of players within a given market. Strong competition can result from having two
evenly -m atched companies fighting for share within the seed, chemistry, and trait development markets.”
AWAITING REGULATORY APPROVAL
Looking ahead, the European Union has until April 4 to decide whether to approve the Dow-DuPont merger, so an official announcement is expected in the next few weeks. After several delays, it’s been reported that regulators will give the transaction their blessing. DuPont said in a recent earnings report that it expects the deal to close in the first half of 2017.
ChemChina extended its $43 billion offer to Syngenta to April 28 as it awaits regulatory approval. The Chinese state-owned company issued a statement saying none of the terms of its offer have changed.
Bayer Chief Executive Werner Baumann and Monsanto CEO Hugh Grant met with Trump in New York before he took office in January to talk about the acquisition. While it’s unknown exactly what was said, a Bayer spokesperson told Reuters at the time that the meeting was “productive,” leading analysts to believe the president will give his blessing to the deal.
Carstensen said if the mergers make it through regulatory approvals in the EU and U.S., it’s possible but unlikely that they would be blocked by the so-called BRIC nations: Brazil, Russia, India, and China. While one objection wouldn’t derail the transactions, if all or at least three of the nations objected, the deals could fall apart.
The other chance that the mergers and acquisitions won’t be approved is if they’re stopped due to security concerns. The Trump administration is in a bit of a pickle in terms of the ChemChina-Syngenta deal – it may want to be pro-business, but the acquisition may prove problematic from a security standpoint, Carstensen said.
“That’s the one wild card – I don’t know if they’ve completed their international security review process,” he said. “It’s unlikely, but I could imagine that a committee composed of defense, commerce, and state, saying ‘no, this creates too many risks to American security by allowing this technology to be in the hands of the Chinese.’ That potential exists.”