European Commission greenlights Bayer-Monsanto merger
Tom Brown
21-Mar-2018
LONDON (ICIS)–The European Commission has conditionally approved Bayer’s proposed acquisition of US agrochemicals major Monsanto, the Germany-headquartered firm said on Wednesday, clearing the way for the $66bn deal to move forward.
Initially expected before the end of 2017, the closing of the deal has been delayed by Commission scrutiny, with regulators launching a Phase II investigation of the proposed merger in August.
The companies remain focused on closing the deal within the revised timeline of the second quarter of 2018, according to Bayer.
The merger is the latest of the megadeals that have been re-shaping the global agricultural sector to edge toward the finish line, following ChemChina’s purchase of Switzerland-based Syngenta, and the merger of US chemicals firms Dow and DuPont.
DowDuPont’s merged agrochemicals unit is expected to be spun off as a separate listed company next year.
The approval stipulates that Bayer divest the bulk of it canola, cotton and soybean seed businesses, its global vegetable seeds division, its hybrid wheat research and development operations, its glufosinate ammonium arm, and certain glyphosate-based herbicides for industrial use in Europe.
Along with three research projects in non-selective herbicides, a license to Bayer’s digital farming portfolio, and Monsanto’s nematicide business, the assets are expected to go to Germany’s BASF, which has largely stood aside from the feeding frenzy in agrochemicals, but stepped in to agree a €5.9bn purchase of Bayer’s remedy package.
“Receipt of the European Commission’s approval is a major success and a significant milestone,” said Bayer CEO Werner Baumann.
The launch of the August 2017 European Commission probe into the Bayer-Monsanto deal had been driven by concerns that the merger may stifle competition in Europe’s pesticides and seeds businesses, leading to an impact on farmers and crop-growing conditions in the region.
The divestments, and the licensing of the digital farming portfolio, allow for sufficient competition and innovation in the space to continue, according to European Commissioner for Competition Margrethe Vestager.
“The parties’ remedies, worth well over €6bn, meet our competition concerns in full. Our decision ensures that there will be effective competition and innovation in seeds, pesticides and digital agriculture markets also after this merger,” she said.
“In particular, we have made sure that the number of global players actively competing in these markets stays the same. That is important because we need competition to ensure farmers have a choice of different seed varieties and pesticides at affordable prices,” she added
However, the size of the assets being divested to a single buyer has triggered a review of BASF’s suitability as an acquirer, and whether the purchase is likely to raise any additional competition concerns, according to the Commission.
Responding to the news, analyst Bernstein
hailed the lack of vertical competition
concerns raised by the regulator, around issues
such as distribution and supply channels,
estimating total annual sales of the businesses
in the revised remedy package at €1.9bn.
“The EC was satisfied that the remedy package
will maintain the same number of global
competitors – 4 in seeds and 5 in chemicals –
with several regional competitors,” the firm
said in an investor note.
However, the company may still need to convince
US regulators, with the country’s Department of
Justice (DOJ) reportedly unsatisfied with
remedy offerings made so far and pushing for
additional divestments.
Bernstein noted last week that the DOJ has
become more aggressive regarding mega-scale
mergers, and projecting that Bayer may need to
sell off at least an additional $370m of
herbicides business, adding that it may be
difficult to address all concerns.
“The DOJ could be concerned about the supplier
power of such a large chemical-seed seller vis
a vis the distributors, which could be
difficult to remedy,” Bernstein said at the
time.
The analyst gave the deal an 85%
chance on completion with the 15% comprised
entirely of political risk around DOJ scrutiny.
Despite the complexities of the deal, Bernstein
noted that Bayer would be unlikely to walk away
at this point, and would be on the hook for
$2bn in break-up fees if it did.
Bayer shares were trading down slightly from
Tuesday’s closing price at 13:36 GMT.
(update adds Bayer, commission, analyst comment, divestment plans)
Pictured above: soy crops (Source: Design Pics Inc/REX/Shutterstock)
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