Is the Bayer-Monsanto Merger Too Big To Succeed?
The merger is likely to draw skepticism from U.S. and EU regulators.
It took $66 billion — the largest all-cash transaction in history – for German biotech giant Bayer to win control over Monsanto, the global seed market leader. The takeover creates a very unique — and to some, very unsettling — kind of corporate beast, one tasked with feeding billions as temperatures rise and farmlands shrink.
If the merger goes through — and that’s a very big if, given that both EU and American regulators are likely to carefully scrutinize the deal — the new firm would corner more than a quarter of the world market for seeds and pesticides. In the United States, it would control some 58 percent of cottonseed sales. According to Vox, the new company would be the largest agribusiness in the world, selling 29 percent of the world’s seeds and 24 percent of its pesticides.
That puts one firm in a pole position to influence, and potentially control, how the world feeds itself. Regulators are likely to investigate whether the merged company will be too big and able to squeeze farmers and shoppers at the price register. And it comes as the rest of the agribusiness industry is also consolidating, in part to counteract slumping commodity prices due to the economic slowdown in China, which trickles down and forces farmers to spend less on supplies.
The specter of greater market power for firms that make the seeds that many poor farmers need to buy each spring before planting is sparking panic in the developing world.
“It will lead to concentration of power and will result in market distraction. This is the third such merger of seed majors in recent times. This will leave only three players in the global market and will have a cascading impact on Indian agriculture,” N. Prabhakara Rao, President of the National Seed Association of India, told the Hindu newspaper.
But the merger could be the future of the industry. Low food prices have left smaller firms unable to innovate, forcing more consolidation of resources.
Monsanto isn’t immune to these pressures. The company for years relied on profits from the weed-killer known as Roundup, which went hand-in-hand with crops resistant to the product, called Roundup Ready crops. But weeds in the United States are developing a resistance and the company, based in Missouri, is scrambling to find a better product. Monsanto even tried to buy rival Syngenta but the latter’s CEO Michael Mack said the $45 billion bid fell “woefully short.”
And the Bayer-Monsanto marriage is just the latest in a string of combinations in the industry. Dow Chemical and Dupont agreed to combine their crop science divisions last year; the deal still hasn’t been approved by regulators. U.S. regulators signed off on a deal for China National Chemical Corporation to buy Swiss seed company Syngenta for $43 billion. Just last week, Potash Corporation of Saskatchewan and Agrium merged in Canada.
These mergers are fueled by the need for increased research and development budgets. Agribusinesses are trying to develop crops that are resistant to climate change as temperatures around the world grow hotter and rainfall grows more erratic. They’re also going to have to feed a lot more people; by 2050, projections show there will be 9 billion people living on the earth. This means there is going to be less area to farm.
To others, these kinds of merger are just excuses to corner the market.
“The attempted takeover of Monsanto by Bayer is a threat to all Americans. These mergers boost the profits of huge corporations and leave Americans paying even higher prices,” Sen. Bernie Sanders said in a statement. “Not only should this merger be blocked, but the Department of Justice should reopen its investigation of Monsanto’s monopoly over the seed and chemical market.”
Whether the Bayer-Monsanto deal will succeed remains to be seen. It could be especially difficult in Europe, where the use of genetically-modified seeds — Monsanto’s bread and butter — is widely frowned upon.
“We expect significant antitrust and political hurdles and assign 50 percent probability of deal completion,” Sanford C. Bernstein & Co. analysts Jeremy Redenius said in a research note.
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