OMAHA (DTN) -- The U.S. Department of Justice announced Tuesday that Bayer and Monsanto will have to divest of $9 billion in assets, largely to BASF, for the Trump Administration to approve of the Bayer-Monsanto merger, valued at $62.5 billion.
The announcement largely meshes with a move several months ago by Bayer to sell portions of its crop science division to competitor BASF for about $7 billion in order to address potential regulatory concerns around the merger. Justice officials said Tuesday they demanded more divestment to "resolve horizontal, vertical and innovation concerns with the merger, preserving competition and protecting American farmers and consumers," said Makan Delrahim, assistant U.S. attorney general for the Department of Justice Antitrust Division.
Delrahim said the $9 billion of assets that Bayer must shed amount to the largest divestiture ever in a U.S. antitrust enforcement action.
Delrahim said the initial merger was "unlawful" but he commended the chief executive officers of Bayer, Monsanto and BASF for coming together to agree to a settlement on the enforcement action and a conditional approval of the merger.
Bayer viewed Tuesday's announcement as bringing the final merger with Monsanto a step closer. "We have now received almost all the clearances needed for closing the transaction and expect to receive any outstanding required approvals shortly," Bayer said in a statement.
"As the regulatory process continues, so does our focus on our customers as we operate as independent companies until the completion of the divestments to BASF. This is expected to be in approximately two months. Meanwhile, we will continue to serve our customers and look forward to the future integration of our two companies, providing farmers with smarter ways to grow food, safer ways to protect it and new ways to make it more nourishing," Bayer stated.
Bayer will become the sole shareholder of Monsanto once the companies receive outstanding approvals and the BASF purchases are finalized. Bayer said this should happen in approximately two months.
The major problem with the merger was the loss of horizontal competition between Bayer and Monsanto as two of the largest agricultural companies in the world, Delrahim said. The proposed merge risked raising the price of seed and chemicals for farmers while reducing choice and lowering innovation.
"Combining Bayer's critical seed treatments with Monsanto's seeds would harm competition because the merged company would have the incentive and ability to raise the prices that rival companies pay for seed treatments, and ultimately raising prices for the American farmer and consumer," Delrahim said.
The remedy requires Bayer to sell its businesses that compete with Monsanto today. That includes the cotton, canola, soybean and vegetable seed businesses, as well as its entire purchase of Bayer's non-selective glufosinate-ammonium sold under the Liberty brand and the LibertyLink trait portfolio, which allows crop to tolerate the Liberty herbicide. The Liberty brand competes with Monsanto's Roundup technologies. Bayer must also divest from its Poncho seed brands and other lesser seed products.
Going along with that, the Department of Justice is requiring Bayer to yield some of its research and development products in the pipeline for these various seed and chemical products to BASF as well.
BASF will also acquire some complementary assets, including Bayer's digital agriculture businesses such as Xarvio. The Department of Justice cited Monsanto's competing businesses in the digital space as well.
"We determined that digital agriculture, which provides new tools for farmers to maximize yield, is important to competitiveness for major agricultural technology businesses," Delrahim said.
The agreement also requires certain timeline provisions to allow BASF to compete with its new lines while not disrupting the crop season, DOJ officials stated.
BASF was chosen last year as the main suitor to take over most of Bayer's divested assets because of experience, financial capabilities and the know-how to replace Bayer as a competitor, Delrahim said.
Groups opposed to the merger condemned DOJ's approval, despite the record divestiture. National Farmers Union, for instance, weighed in by noting the level of related mergers, including Dow-DuPont and Syngenta-ChemChina that have brought the seed and chemical industry down to fewer global competitors.
"Three massive companies now control the markets that supply agricultural inputs like seeds, traits and chemicals," said Roger Johnson, president of NFU. "This extreme consolidation drives up costs for farmers and it limits their choice of products in the marketplace. It also reduces the incentive for the remaining agricultural input giants to compete and innovate through research and development."
While essentially approving the Bayer-Monsanto merger with the actions taken, the Department of Justice filed a court complaint against the merger in the U.S. District Court for the District of Columbia on Tuesday as well as the proposed settlement. There will be a 60-day comment period set up then the Department of Justice will respond to those concerns raised. A final judgement will come after that.
The DOJ announcement comes after the European Union approved the merger, valued at $62.5 billion, back in March. The EU Commission approved the deal after Bayer agreed to sell a large share of assets to BASF. There are still some countries that have not approved the merger. DOJ credited not just counterparts in the EU, but also Canada and Brazil for their help with the enforcement action.
Chris Clayton can be reached at Chris.Clayton@dtn.com
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