Of all the hoops that a Monsanto/Syngenta merger would have to jump through, the regulatory one could be among the most complicated.
“This is going to require global clearances in at least four continents, which will take at least 18 months,” said Jon Leibowitz, who served as chairman of the Federal Trade Commission from 2009 to 2013. Now a partner with Davis Polk in Washington, Leibowitz advises Syngenta on regulatory issues and spoke to AgWeb in July about the challenges he sees for the proposal.
Monsanto has acknowledged that such a deal would involve scrutiny from American and European regulators. And, to address concerns about the dominant market share of the combined company, Monsanto leaders have already said they will sell Syngenta’s seed business and any overlapping chemistry if the deal goes through.
Not so fast, says Syngenta, whose leaders and advisors suggest that Monsanto is being unrealistic about the risks involved.
“As I saw when I was at the FTC, a lot of companies (that want to merge) come in and say, ‘I fixed the problem,’” Leibowitz told AgWeb. “More often than not, they haven’t.”
What Regulators Will Consider
In general, Leibowitz said, agencies like the FTC, Department of Justice (DOJ) and others focus on two main questions when reviewing a big merger. “What regulators hope to see is that choice will be increased and that prices will go down, whether that’s due to more efficiency, greater integration or other factors,” Leibowitz explained.
To answer those questions, Leibowitz said that regulators use a variety of tools, depending on the issues involved. They might do “economic testing to see whether prices can go up,” he said. They might interview clients, asking the two companies for a list of their top 20, 50, or 100 customers.
“They are going to talk to farmers,” Leibowitz predicted. “They will ask them, ‘will this help you or hurt you?’”
While AgWeb’s surveys have found that farmers think that such a deal will result in less competition and higher prices, Monsanto strongly disagrees.
“Regulators will conclude that the merged entity will not have the ability to substantially foreclose markets post-merger,” Monsanto’s legal advisors wrote in a June white paper. “… Nor will there be an incentive for the merged party to engage in strategies that would foreclose competition. Monsanto has a long history of licensing traits and otherwise enabling competing seed companies. That strategy has been and remains a preferred and profitable one for Monsanto, and there is nothing about the acquisition of Syngenta’s chemistry business that will change that.”
After examining a proposed deal, a regulator like the FTC or DOJ might approve the deal as is or it might place additional conditions on the deal. The combined company might have to agree to license their products or sell more business segments than they’d planned.
So could the E.U., China, or Latin America, and depending on what a regulator might request or require, the financial appeal of the deal could suffer, putting the proposal at risk despite many months of work. “When you’re dealing with multiple clearances and divestitures, the benefits of any proposed deal could be dramatically undercut,” Leibowitz said.
Company Negotiations and Antitrust Reviews
What if Syngenta finally agrees to accept Monsanto’s $45 billion offer after all? Would the deal slide on through? Leibowitz declined to speak specifically about the Syngenta situation, but in general, he said, such a change of heart would not affect the regulatory process in the U.S.
“When a company is resistant to a deal and wants to maintain independence, would the antitrust review change as a result of the two companies agreeing to merge?” he said. “No. … Antitrust reviews should be the same.”
As for which federal agency—the FTC or the DOJ—might conduct the antitrust review for the proposed merger, Leibowitz said it could be either one. “Who gets a deal is based largely on which agency has more experience in an area. With agriculture, both agencies have experience. The FTC approved the Novartis/Zeneca merger that created Syngenta in 2000, but the DOJ’s antitrust division conducted the 2010 investigation into possible monopolization by Monsanto,” he explained. “The agencies usually sit down and work these so-called ‘clearance’ issues out.”
While Monsanto executives agree the regulatory issues involved in the Syngenta proposal are significant, they also suggest that Syngenta may be overplaying the issue and using it as a negotiating tactic.
“We’ve been talking to Syngenta for years. This only came up after we made our offer,” Robb Fraley, Monsanto’s chief technology officer, told AgWeb. “We think this is a transaction that would be approved by regulators around the world.”