Antitrust Laws and the Bayer-Monsanto Merger

 

By Lindsey Mattila (CMC ’17)

Six days ago, Bayer and Monsanto announced a $66 billion merger that would create the world’s largest agrichemical company in the world. This deal, valued at $128 a share, will be the most expensive all-cash buyout in history.[1] In recent years, the agriculture industry has been largely dominated by six firms (Monsanto, Syngeta, Bayer, DuPont, Dow, and BASF), but this deal will narrow it down to only five, and then potentially four if the DuPont-Dow merger is also accepted. Last year, Bayer’s sales totaled $51 billion and Monsanto’s totaled $15 billion; their revenues alone show the influence and power this merger could create. [2]

The Bayer-Monsanto deal is the latest in the trend of large firms merging with other equally large firms to save resources through cutting costs, reducing product overlap, and giving both firms more capital to invest in innovation. Many antitrust regulators, however, are not quite sold that these benefits outweigh the anticompetitive effects. Agricultural innovation is important to feed the growing global population, making competition in the industry more necessary than ever.

These deals reduce competition in an industry that affects everyone worldwide. Were the Bayer-Monsanto deal to be approved, the new company would have control over a quarter of the world’s seed and pesticide stock.[3] Decreased competition could lead to the new company raising prices for seeds and pesticides that are necessary for modern farming, thus raising costs for consumers.

American, German, and other governments with authority in this deal want to ensure that there is still fair competition in the market if the two companies were to merge. Bayer will have to get approval for antitrust laws in over 30 jurisdictions around the world. In the United States specifically, the Department of Justice (DOJ) will be looking for practices that violate the Federal Trade Commission Acts (FTC Acts) or the Clayton Act. The FTC Act bans “unfair methods of competition” and “unfair or deceptive acts.” Unlike the FTC Act, the Clayton Act explicitly prohibits certain mergers and acquisitions where the outcome will substantially decrease competition.[4] The President of the American Antitrust Institute, Diana Moss, testified before the Senate Judiciary Committee to explain in more detail why the merger would breach both of these laws. She made two main points in her testimony, including her suggestion for companies to solely combine research divisions if innovation is what they are genuinely concerned about. Moss’s second point was that although crop yields have increased, prices have increased faster- which is exactly the problem that biotechnology is supposed to solve. Large biotechnology firms claim credit for innovation, but the efficiency with which they produce commodities has not been reflected in decreased prices.

Regardless of the outcome, Bayer is confident it will be able to find a way to consolidate with Monsanto even if they are not able to have a clean cut merger.[5] They plan on breaking up Monsanto and divesting the necessary assets to follow through with the merge. The courts will have to decide whether this is enough to clear the deal from any anti-trust scrutiny.

 

 

 

 

 

 

[1] Drew Harwell, “Bayer and Monsanto to merge in mega-deal that could reshape world’s food supply,” The Washington Post, 14 September 2016. https://www.washingtonpost.com/news/business/wp/2016/09/14/bayer-and-monsanto-merge-in-mega-deal-aimed-at-domi-worlds-food-supply/

[2] Ibid.

[3] Ibid.

[4] The Antitrust Laws, Federal Trade Commission, access September 20, 2016. https://www.ftc.gov/tips-advice/competition-guidance/guide-antitrust-laws/antitrust-laws

[5] Krishnadev Calamur, “Bayer and Monsanto’s Mega Merger,” The Atlantic, 14 September 2016. http://www.theatlantic.com/news/archive/2016/09/bayer-and-monsantos-mega-merger/499919/

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