The European Commission has launched a Phase II in-depth investigation into Bayer's planned $66 billion takeover of Monsanto, saying it has “preliminary concerns” that the deal, which would create the world's largest integrated pesticides and seeds company, “could reduce competition in a number of different markets resulting in higher prices, lower quality, less choice and less innovation."
In particular, the Commission sees risks in the market for herbicides, where Monsanto’s glyphosate-based Roundup competes directly with Bayer's glufosinate-based Liberty, as well as in canola seed and licensing of cotton seed technology.
The German group has already agreed to sell the Liberty range and the canola and cotton seeds resistant to the herbicide in exchange for approval of the merger by South Africa’s regulatory authority. As part of its contract with Monsanto, it has also pledged to divest businesses with annual sales of up to $1.6 billion, if required.
But while Bayer hopes to get by with fewer divestments, some observers estimate that the assets it may have to shed could be worth as much as $2.5 billion. BASF and Syngenta are seen as the prime candidates to pick up the spoils.
The Commission had similar competition concerns about the merger plans of Dow Chemical with DuPont and ChemChina with Syngenta and required substantial concessions.
Bayer and Monsanto notified their proposed transaction to the EU on Jun. 30, 2017, and submitted commitments a month later. In reaction to Brussels’ plans for the in-depth probe, which it had expected, Bayer said it “looks forward” to continuing to work constructively with the authority and still aims to have the deal approved by the end of this year.
Bayer’s target may be somewhat optimistic, as the Commission sees the divestments offered to date as not going far enough, although – depending on the extent of concessions – it could receive clearance early next year. As its expected final decision date, the EU authority has named Jan. 8, 2018.
