EU to take close look at DowDuPont, fears ag impact

HOUSTON (ICIS)–The European Commission has opened an in-depth probe into the proposed $130bn combination of US-based majors Dow Chemical and DuPont, it said on Thursday.

The commission is especially worried about impacts on agricultural markets, it said.

Under the deal, announced last December, the merged DowDuPont would be separated into three independent companies – agriculture; materials sciences; and specialty products – within 18 to 24 months after the merger is completed toward the end of 2016.

The commission said that Dow and DuPont both have a strong portfolio of herbicides and insecticides. As such, the combination could reduce competition on these market, with impacts on price, quality, choice and innovation.

Furthermore, Dow and DuPont both develop so-called “gene editing” technologies that could be used to accelerate the breeding of new seed varieties. The combined DowDuPont may have fewer incentives to license these technologies to competitors, or it may make the development of competing technologies more difficult, the commission said.

“The livelihood of farmers depends on access to seeds and crop protection at competitive prices,” competition commissioner Margrethe Vestager said.

“We need to make sure that the proposed merger does not lead to higher prices or less innovation for these products,” she added.

But the commission will also probe impacts of DowDuPont on petrochemical and related markets, it said.

In polyolefins and monomers, Dow and DuPont are big suppliers of specialty polyolefins, which are thermoplastics derived from petrochemical products and widely used in packaging and adhesive applications.

The commission is investigating the effect of eliminating one competitor and creating new vertical links in these concentrated markets, it said.

The transaction was notified to the commission on 22 June and the commission now has 90 working days, until 20 December 2016, to take a decision.

On 20 July, Dow and DuPont submitted commitments to address some of the commission’s preliminary concerns. However, the commission said that it considers these commitments “insufficient to clearly dismiss its serious doubts as to the transaction’s compatibility with the EU Merger Regulation.”

Dow and DuPont, in reacting to the commission’s announcement on Thursday, said that a “phase II” in-depth investigation was a common next step in the EU review process for a transaction of the size of the DowDuPont deal.

“As stated previously, the companies expected a thorough review and are working closely with relevant regulators, including the European Commission. The companies continue to believe the merger is procompetitive and good for customers and consumers,” they said.

Analysts have said that the pending merger deal has only a relatively low chance of faltering because of regulatory or other risks.

Additional reporting by Al Greenwood

INSET IMAGE: (source: ddp USA/REX/Shutterstock)