The purchase of Precision Planting would hurt competition and raise prices, they claim
The recent news the Department of Justice (DOJ) has sued Deere and Company to block its $190 million purchase of Precision Planting caught the ag world by surprise, given the lack of government opposition so far to other proposed major ag mergers.
The DOJ’s reason: A Deere/Precision Planting deal would lower competition and raise prices for farmers.
The lawsuit, filed Aug. 31 in U.S. District Court for the Northern District of Illinois, provides insights into the antitrust division’s thoughts about the acquisition, which was announced in November 2015. Deere and Monsanto Company, which owns Climate Corporation, Precision Planting’s direct parent, plan to contest the suit.
Here are DOJ’s top concerns, according to the lawsuit, which can be found at http://www.justice.gov/opa/file/ 889071/download:
- The combination of John Deere and Precision Planting would put 86% of all high-speed precision planting sales in the U.S. into the hands of the combined company.
- Precision Planting, which offers high-speed precision retrofit options for planters, has been a significant competitor in the marketplace for John Deere. “A farmer who might otherwise spend over $150,000 to purchase a new ExactEmerge planter from Deere could achieve the same results at one-fifth the cost by upgrading a conventional planter with Precision Planting’s retrofit components,” the complaint says.
- The deal would also stymie innovation for non-John Deere equipment, DOJ says, “allow[ing] Deere to protect its lucrative planter business by reserving the best and most advanced high-speed planting technology for new Deere planters while ‘temper[ing]’ the growth of the provision of Precision Planting’s technology to Deere’s planter rivals. The acquisition would also enable Deere to temper its own growing retrofit business developed to compete with Precision.”
- DOJ sees an independent Precision Planting as a vital competitive force for lower prices in the high-speed planter market. “In evaluating the benefits of acquiring Precision Planting, Deere estimated eliminating competition from Precision Planting would allow it to avoid cutting its ExactEmerge prices by 5% to 15%,” according to the lawsuit. “Deere calculates the ‘strategic value’ of the acquisition, which it would retain by not having to compete with Precision Planting, ranges between $70 million and $210 million.”
- There are high barriers to entry for the high-speed precision planting market. Both John Deere and Precision Planting invested years in developing their high-speed seed delivery technology, and “strong patent protections, in part, ensure John Deere and Precision Planting are the only two firms offering these seed delivery cartridges,” the complaint says.
- The merger would be unfair to other machinery companies such as Case IH and AGCO, which have been developing a factory-install business with Precision Planting. “If the acquisition were consummated, Deere would likely set the price, technology and go-to-market timing of high-speed precision planting systems suppliedto competitors to not undercut its planter sales. This strategy would likely harm Deere’s rivals, entrench Deere as the dominant provider of high-speed planting systems and limit competitive choices for farmers,” the lawsuit says.
Deere and Climate Corporation took issue with DOJ’s findings. “Competition in precision agriculture is strong and growing in all of these channels as companies around the world continue developing new technologies. The acquisition will enable broader access to these advancements by ensuring farmers the choice to either buy new machinery or retrofit older planting equipment with the latest new innovations,” the companies say in a joint statement. “When the transaction is finalized, Deere will preserve Precision Planting’s independence in order to ensure innovation and speed-to-market and will invest in additional innovation efforts at Precision Planting to benefit customers.”