By William Moore, National News Writer
On Wednesday, the 14th of September, chemical and pharmaceutical giant Bayer AG announced that it had reached an acquisition agreement with major agricultural company Monsanto. Under the terms of the 66 billion dollar deal, the German-based Bayer purchased Monsanto at the premium price of $128 per share, as Reuters reported.
This deal comes on the heels of a series of similar merger and acquisition agreements made by several of the biggest global agriculture businesses, and follows the general trend of consolidation that has been occurring in the industry in recent history.
As CNBC reports, Chinese State-owned ChemChina’s recent acquisition of Swiss company Syngenta, and the merging of U.S. chemical giants Dow Chemical and DuPont have drastically reduced the number of firms selling on a global scale.
According to Reuters, if all three of these deals were to close, the three resulting firms would control 70 percent of the world’s pesticide market, and 80 percent of the U.S. corn-seed market.
It is for this exact reason that the Bayer-Monsanto deal has fallen under a great deal of scrutiny from anti-trust authorities in both the United States and the European Union.
In order for the deal to close, it must first be approved by regulatory committees in both regions. One of the major factors that will play into the decision to allow the deal or not will be the amount of overlap that exists between the two companies.
If the two companies overlap too much in any one particular market segment, their combination could violate anti-trust regulation. Potential areas of overlap include soybeans, canola, and cotton seeds according to Reuters.
It is possible that both companies will have to divest some of their market share in these areas in order for the deal to be approved.
In addition to these factors, oversight boards will also have to consider the implications that so many sizable mergers will have on the global innovation market.
With fewer firms competing against each other, the potential exists for a slump in investment in new research and development, accompanied by a rise in price for consumers.
Following announcements of the deal, Monsanto’s stock price rose a meager 0.6 percent, ending the day at $107.76—well below the agreed upon deal price as the USA Today reports. Analysts cited investor concerns over the regulatory oversight as the primary reason for the underwhelming performance.
Despite all of these concerns, the CEOs of both companies expressed a great deal of confidence over the fate of the deal, saying that they expected it to close by the end of 2017.
As USA Today reports, Bayer CEO Werner Baumann told investors in a conference call that the deal reflects “a powerful response to the enormous challenges facing farmers and the ag industry overall” among which include the growth of global populations and a corresponding increase in the demand for food. In addition to their confident rhetoric, Bayer has agreed to pay Monsanto two billion dollars to cover severance costs, should the deal fail under antitrust pressure.
The issue of whether to allow the merger has also become quite politically charged. As the USA Today reports, a petition launched by the global advocacy group SumOfUs shortly after the announcement of the deal called politicians to put a stop to the merger: “If the deal is successful, it’ll make the new corporation the biggest seed maker and pesticide company in the world – and it will have almost total control of the most important aspect of our food supply.”
Former presidential candidate Bernie Sanders weighed in, calling the deal “a threat to all Americans” according to Reuters.
The Obama administration has had a history of strict enforcement of anti-trust regulation of this sort, but given how long it takes for such massive and complex deals to be processed, it is almost a certainty that the deal will not be considered by regulatory groups in the U.S. until after the upcoming presidential election in November.
This means that the merger deal will be one of the first major regulatory tests for the new president of the United States.
A version of this article appeared in the Tuesday, September 27th print edition.
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