The $66 billion tie-up — the biggest deal this year — follows months of mergers that are consolidating agriculture’s top seed and chemical producers into a knot of global powerhouses.
Antitrust officials around the world who are already grappling with a wave of consolidation across agriculture will be forced to sort through a new layer of complexity now that Germany’s Bayer has clinched a deal to buy Monsanto to create a seed and crop-chemical giant.
In a sign of just how protracted the review will be, the companies said they will seek approval in 30 jurisdictions around the world, including the U.S., European Union, Canada and Brazil, and don’t expect to close until the end of 2017.
EU Competition Commissioner Margrethe Vestager said the goal is to ensure farmers “enjoy affordable prices, choice and not to be locked in with just one provider.”
Merger of agriculture, chemical giants
Bayer: Based in Germany, its businesses include chemicals and pharmaceuticals.
Monsanto: Based in St. Louis, it’s the world’s largest seed supplier and a pioneer of crop biotechnology. The kind of genetically modified seeds Monsanto started to commercialize two decades ago now account for the majority of corn and soybeans grown in the U.S.
Combined: Revenues would be about $26 billion.
The $66 billion merger — the biggest deal this year — follows months of mergers that are consolidating agriculture’s top seed and chemical producers into a knot of global powerhouses.
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While the companies say the overlaps between their businesses are minimal, their tie-up creates a large combined footprint in cottonseeds and crop chemicals, and may raise concerns that competition in research and development could suffer, reducing innovation, analysts say.
Some organizations that advocate for farmers worry reduced competition will force up prices on necessary products. National Farmers Union President Roger Johnson said in a statement that the deal marks the fifth major agribusiness merger in the past year.
More than 250 members of the group are in Washington this week to meet with Congress and Agriculture Secretary Tom Vilsack, raising concerns that such deals will result in higher costs of seed and fertilizer at a time when farmers are already struggling.
“We will continue to express concern that these megadeals are being made to benefit the corporate boardrooms at the expense of family farmers, ranchers, consumers and rural economies,” Johnson said.
The Bayer-Monsanto agreement follows pending deals between Dow Chemical and DuPont, and China National Chemical’s planned takeover of Syngenta.
The rush to consolidate doesn’t just affect seeds and chemicals. Fertilizer makers Potash Corp. of Saskatchewan and Agrium have agreed to merge, while Deere & Co. is fighting to complete a deal with Monsanto that the U.S. Justice Department says would give the manufacturer a virtual monopoly for high-speed planters used on farms.
Antitrust officials will consider not just each deal individually, but how all the deals combined would impact markets, said Elai Katz, an antitrust attorney at Cahill Gordon & Reindel in New York.
“Whenever we think about merger review, it’s always about the future. You’re imagining what will the world look like after this merger,” Katz said. “Here you have to say what will the world look like after this merger, and this merger and that merger. That, by definition, complicates it.”
The biggest producers of seeds and chemicals have already transformed crop-production worldwide, with a new round of consolidation promising to further shape the global food supply.
Biotech crops, the result of decades of development and billions of dollars in investment, have increased farm productivity and in many cases led to lower prices for consumers.
At the same time, critics say, crop diversity has declined and small-scale farms are disadvantaged.
The proposed combination of Bayer and Monsanto would create a seed and crop-chemical heavyweight with about $26 billion in sales. The deal would give Bayer, whose businesses include chemicals and pharmaceuticals, a company that’s both the world’s largest seed supplier and a pioneer of crop biotechnology.
The kind of genetically modified seedsMonsanto started to commercialize two decades ago now account for the majority of corn and soybeans grown in the U.S.
Cottonseed, canola seed and glufosinate herbicide assets, with sales totaling about $1.2 billion, may need to be divested, analysts at Sanford C. Bernstein & Co. said in a note.
“We expect significant antitrust and political hurdles and assign 50 percent probability of deal completion,” the Bernstein analysts led by Jeremy Redenius said.
Investors appear to be fretting about the deal’s prospects for approval. Monsanto shares closed Wednesday at $106.76, well below Bayer’s offer to pay $128 a share.
Seeds and crop chemicals are major expenses for farmers, which could trigger political backlash against the deal. The Senate Judiciary Committee plans to hold a hearing on mergers in the industry Sept. 20, and several lawmakers warned about risks to competition.
“Iowa farmers who I’ve spoken with are worried about rising input costs, especially in an increasingly weak agriculture economy,” said Sen. Chuck Grassley, an Iowa Republican. “Today’s announcement will only heighten those concerns.”
Sen. Mike Lee, a Utah Republican who leads the Judiciary Committee’s antitrust panel, said the deal raises “serious antitrust issues” and could reduce consumer choice, while Vermont Sen. Bernie Sanders called it a “threat to all Americans.”
“Any time you have this level of change, growers will be leery and concerned about what it’s going to look like tomorrow when it all shakes out,” said Kolby Nichol, vice president of business development for Winnipeg, Manitoba-based Farmers Edge, a precision-agriculture data company.
In the U.S., the Justice Department, which shares antitrust enforcement with the Federal Trade Commission, will probably review the combination since it scrutinized other Monsanto deals. The companies also said they plan to file with the Committee on Foreign Investment in the U.S., which reviews foreign acquisitions of U.S. businesses.
“Economists have been raising questions about competition economywide — whether there have been too many mergers and acquisitions, whether companies are getting too big, whether they’re not being competitive enough. We see these same sort of trends happening in agriculture,” said Keith Fuglie, an economist at the Department of Agriculture.
Mergers among agriculture firms over the last two decades have helped the biggest players sharply consolidate their control over markets, according to the Agriculture Department.
In crop seeds and biotechnology, for example, the four biggest companies had a market share of 54 percent in 2009, the most recent data available, up more than double from 21 percent in 1994.
The takeover would give the combined company 58 percent of U.S. cottonseed sales, according to the most recent government data, which means it’s probably an area they’ll have to address by offering to sell assets.
Monsanto became the largest U.S. cottonseed company in 2007 with its purchase of Delta & Pine Land Co. for $1.6 billion.
To satisfy antitrust concerns, St. Louis-based Monsanto agreed at the time to sell its Stoneville Pedigree Seed unit, which had 12 percent of U.S. cottonseed sales, to Bayer for $310 million. It also agreed to divest its smaller NexGen cottonseed brand.
Another focus of the antitrust review will be on the companies’ competing biotechnology that produces herbicide-resistant seeds, according to Jason Miner, an analyst at Bloomberg Intelligence. The companies also compete in selling herbicides, though Monsanto’s herbicide — Roundup — is a commodity product with lots of generic competition from other suppliers, while Bayer produces more advanced weedkiller, he said.
In crop chemicals like herbicides, the companies created by the Syngenta-ChemChina and Bayer-Monsanto mergers would control more than half the market, according to 2015 data compiled by Bloomberg.
For corn seeds, a combined Dow and DuPont along with Monsanto would control nearly three-quarters of the U.S. market, while in soybeans, they would hold about 65 percent, according to 2015 data from Verdant Partners, an agriculture consulting firm in Champaign, Ill.
A more important issue for competition authorities may be the effect of the deals on R&D, particularly in advancing the biotechnology that has revolutionized farming by producing traits in seeds.
Monsanto, Bayer, Dow, DuPont and Syngenta dominate this market, said Dean Cavey, a managing partner at Verdant, which has done work for the companies doing deals.
The looming consolidation risks undermining competition between companies to innovate and introduce new products, according to the American Antitrust Institute, a Washington, D.C.-based organization critical of further concentration in the industry. Fewer competitors also mean reduced opportunities for the firms to collaborate in developing seed traits, said the institute’s president, Diana Moss.
“You want them maintaining independent R&D programs so they can compete hard to be first to market, and the mergers would eliminate that,” she said.
Cavey at Verdant disagrees. While the proposed mergers would reduce the number of leading R&D spenders, he said, combining would give the companies the resources to increase spending on the innovations that benefit farmers.
“The only way innovation is going to take place is by spending lots of money, and that has to be by these companies,” he said. “They’re the only ones that can afford it.”