Bayer AG’s possible takeover of Monsanto Co. isn’t likely to raise significant antitrust hurdles by itself, but it could intensify global scrutiny of the handful of companies engaged in unprecedented consolidation across the crop-chemicals industry.
Even if Bayer could win approval for Monsanto, regulators may slow down all the deals as they assess how they would affect the overall market. Global competition regulators are already investigating the $130 billion merger between Dow Chemical Co. and DuPont Co., while national security officials in the U.S. weigh China National Chemical Corp.’s bid to acquire Syngenta AG of Switzerland for $43 billion. Lawmakers in the U.S. were quick to raise concerns about both the Dow-Dupont and ChemChina-Syngenta tie-ups.
"The cascade of deals is likely to trouble regulators," said Erik Gordon, a professor at University of Michigan’s Ross School of Business. "They are faced not with a decision about a single deal, but rather with a decision about the structural concentration of the whole industry."
The latest potential megadeal in the crop-chemical business comes as some $504 billion of transactions announced last year have been terminated for various reasons, including regulatory opposition. Most recently, Staples Inc. and Office Depot Inc. abandoned their merger Tuesday after a federal judge sided with U.S. antitrust officials who challenged the combination of the two largest office suppliers.
A Bayer-Monsanto tie-up would create the world’s biggest supplier of seeds and farm chemicals. Monsanto, which has a market value of almost $40 billion, is the world’s largest seed maker and also makes Roundup, its blockbuster herbicide. Bayer, which invented aspirin, makes herbicides, insecticides and fungicides.
"There’s only six companies that have over $5 billion in sales in these markets and three of them are already involved in deals," said Bloomberg Intelligence analyst Jason Miner. "Even if the products aren’t directly overlapping, it’s a shrinking list of players."
The companies will have to win over antitrust officials in the U.S. who have successfully challenged a string of mergers between rivals, including Halliburton Co.’s deal for Baker Hughes Inc. and Electrolux AB’s planned purchase of General Electric Co.’s appliance business, in addition to Staples’ bid for Office Depot.
"The current regulatory mood appears to have shifted in the U.S.," said Jasper Lawler, a London-based market analyst at CMC Markets Plc. "Washington looks like it’s more interventionist now than it has been in years. That general environment is almost one of the bigger risks in this deal.”
Senator Chuck Grassley, a Republican from Iowa, asked antitrust officials in March to closely examine how the Dow-Dupont and ChemChina-Syngenta combinations could reduce choice for U.S. farmers and hurt innovation. Grassley is also among a group of senators who have called on the Committee on Foreign Investment in the U.S. to review how ChemChina’s purchase of Syngenta could impact U.S. food security.
Still, since the main product overlap between Bayer and Monsanto is in weed killers, which is only a small part of Bayer’s portfolio, divestitures may be enough to satisfy competitive concerns, said Miner, the Bloomberg Intelligence analyst.
"From the antitrust side, I don’t think there’ll be many issues," said Lutz Krafft, a senior adviser at consulting firm ChemAdvice GmbH who once worked at Bayer. "The overlap is very low."