Mega Mergers, Mega Concerns

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Recent announcements of seed company acquisitions and mergers have generated high interest among market traders, in Congress and throughout the US farming sector. More than a few antitrust and other regulatory hurdles are ahead for those transactions (including Bayer’s purchase of Monsanto and the Dow-DuPont merger). Washington sources say the proposals may face timing issues relative to growing anxiety of trade policy and other issues, both pre- and post-November 8 elections.

Two senators (and former lawyers) from both political parties recently raised “serious antitrust issues” relative to Bayer’s proposal buy of Monsanto. Sens. Mike Lee (R-Utah) and Amy Klobuchar (D-Minn.), the chairman and ranking member of the Senate Judiciary Subcommittee on Antitrust, Competition Policy, and Consumer Rights, said the proposed acquisition of Monsanto by Bayer “raises serious antitrust issues.”

Lee noted the two provide key inputs, such as seeds and herbicides, to farmers to grow essential crops – “and the combination of these two companies may have troubling implications for farmers and American consumers. The transaction has the potential to result in a significant loss of competition and reduced incentives and ability to innovate, thereby raising prices and reducing consumer choice. Lee said he will encourage the Department of Justice or the Federal Trade Commission “to closely scrutinize the transaction and will consider whether a hearing is necessary to fully explore the competition issues raised by so much consolidation in such a short time.”

The current wave of consolidations in the seed industry, Klobuchar said, has major implications for the agriculture supply chain “that must be examined.” This proposed acquisition ”merits close scrutiny by regulators to examine its potential impacts on farmers and consumers” she added. “We must consider not just the merger’s impact on seed prices, but whether it will also stifle innovation and competition.” As Ranking Member of the Antitrust Subcommittee, Klobuchar said she takes serious “the responsibility to provide oversight over potential consolidations and to ensure that antitrust laws are vigorously enforced to protect competition.”

Senate Judiciary Committee Chairman Chuck Grassley (R-Iowa) is calling in the executives of agribusiness and chemical giants involved in major merger deals to testify on consolidation in the sector. The senator’s announcement came on the same day that the German chemical company Bayer said US crop biotechnology company Monsanto accepted its $66 billion acquisition bid. That announcement follows on the heels of similar proposed deals between China National Chemical and Syngenta, and between DuPont and Dow Chemical.

“As mergers continue to occur in the seed, agro-chemical and fertilizer industries, federal antitrust regulators must be ever more vigilant to ensure a robust competitive environment in this important sector,” Grassley said in a statement on the Bayer-Monsanto deal. “With several proposals under review, it’s crucial that the antitrust authorities collaborate as appropriate with each other, and the Department of Agriculture, in their analysis to ensure that competition is preserved for farmers and consumers,” the statement added.

Grassley has scheduled a hearing September 20 to examine consolidation in the seed and agro-chemical industries. Executives of major players in recent proposed deals are expected to testify, including Erik Fyrwald, CEO of Syngenta; Jim Blome, president and CEO of Bayer CropScience North America; and Dr. Robert Fraley, executive vice president and chief technology officer of Monsanto. DuPont and Dow executives are also on the list.

The American Soybean Association, whose members rely heavily on the bioengineered products provided by Monsanto, said it was examining the deal to determine if it would hurt competition. “ASA intends to closely analyze the potential impacts of this proposed merger on soybean farmers to provide comments to the companies and US regulatory authorities that must approve any acquisition, including the Justice Department,” the trade group said in a September 14 statement.

Antitrust concerns are not limited to the United States. In June, European Union antitrust chief Margrethe Vestager assured some concerned European lawmakers that EU officials would thoroughly vet any deal between Bayer and Monsanto.

The September 17 issue of the Economist noted: “Bulking up is a global trend. The annual number of mergers and acquisitions is more than twice what it was in the 1990s. But concentration is at its most worrying in America. The share of GDP generated by America’s 100 biggest companies rose from about 33 percent in 1994 to 46 percent in 2013. The five largest banks account for 45 percent of banking assets, up from 25 percent in 2000. In the home of the entrepreneur, the number of startups is lower than it has been at any time since the 1970s. More firms are dying than being born. Founders dream of selling their firms to one of the giants rather than of building their own titans.”

Comments: The Bayer-Monsanto review will be lengthy. The companies said they will seek approval in 30 jurisdictions around the world, including the U.S., European Union, Canada and Brazil, and do not expect to close until the end of 2017 – beyond the end of President Obama’s administration. Democratic nominee Hillary Clinton has vowed to appoint antitrust regulators who will be tough on concentrated sectors. GOP presidential nominee Donald Trump’s position is murky relative to the outlook for U.S. antitrust enforcement.

NOTE: This column is copyrighted material; therefore reproduction or retransmission is prohibited under U.S. copyright laws.