The European Commission has opened an in-depth investigation into Bayer’s proposed acquisition of Monsanto, with a particular concern over the potential combined global market shares of non-selective herbicides and oilseed rape varieties. It is co-operating with other competition authorities around the world, especially in the US, Canada, Australia, Brazil and South Africa.
The St Louis-based Monsanto board agreed Bayer’s bid in late September 2016, after a four month pursuit by the German multinational, with shareholder approval following at the end of the year. At the time, the merger of Monsanto and Bayer’s Crop Science division indicated a $23 billion business. The deal was originally expected to complete at the end of 2017, but the EU decision to study it in more detail is likely to delay that date.
The investigation, under the EU Merger Regulation, follows the Commission’s concern that creation of the world’s largest integrated pesticides and seeds company could reduce competition in market sectors such as pesticides, seeds and traits, resulting in higher prices, lower quality, less choice and less innovation. It says the deal would combine two competitors with leading portfolios in non-selective herbicides; seeds and traits; and digital agriculture, both of which are also actively developing new products in these areas.
The transaction also takes place against a background of global consolidation in these sectors – the Commission says it “intervened to protect competition for the benefit of farmers and consumers in the recent mergers of Dow and DuPont and Syngenta and ChemChina, “
The Commission’s preliminary concerns centre around three main areas. Its main concerns in pesticide sector is the combination of Monsanto’s glyphosate active, “the most sold non-selective herbicide in Europe”, with Bayer’s glufosinate ammonium non-selective herbicide, “one of the very few alternatives to glyphosate”. Additionally, Monsanto and Bayer “are two of a limited number of competitors in this field capable of discovering new active ingredients and developing new formulations, including addressing the growing problem of weed resistance to existing products”.
Other crop protection concerns are the extent to which Monsanto’s activities in biological pesticides would compete with Bayer’s existing portfolio of chemical pesticides, and their overlap in products aimed at controlling the varroa mite bee parasite in Europe.
On the seeds side, Monsanto has the highest market share in oilseed rape seeds in Europe, while Bayer is the largest player in oilseed rape seeds globally, and a major competitor in Europe. Both have R&D programmes in wheat and vegetable crops, with high combined market shares in a number of the latter crops, with some products competing directly with each other. The two companies are also important licensors of cotton seeds to their competitors in Europe.
Both companies have invested heavily in developing crop traits over the past two decades, although this is as yet not a major market in Europe. The Commission notes that Monsanto has a dominant position in several traits markets worldwide, with Bayer one of its few competitors in certain traits markets, notably for alternative herbicide tolerance traits. The EU investigation will examine whether the merger could sees a reduction of competition in these markets, “taking into account the existing links between the few worldwide competitors through cross-licensing and through research and development co-operations”.
A combined Bayer and Monsanto would be the largest integrated company in the industry, with the biggest portfolio of pesticides and the strongest global market positions in seeds and traits, concludes the Commission. This could have implication for its competitors’ access to distributors and farmers, for instance of Bayer and Monsanto were to bundle or tie their sales of pesticide products and seeds, notably with the advent of digital agriculture. Both Bayer and Monsanto are investing in digital technologies, with the aim of collecting farm and cropping data and information to providing tailored advice based on insights from aggregated data.
“Seeds and pesticide products are essential for farmers and ultimately consumers,” notes EU Commissioner Margrethe Vestager who leads on competition policy. “We need to ensure effective competition so that farmers can have access to innovative products, better quality and can also purchase products at competitive prices while maintaining an environment where companies can innovate and invest in improved products.”
Ms Vestager adds that the Commission has been petitioned through emails, postcards, letters and tweets expressing concern about Bayer’s acquisition of Monsanto. But she says the Commission’s mandate under the merger control rules is to assess the merger solely from a competition perspective. Other fears raised come under EU and national rules designed to protect food safety, consumers, the environment and the climate.