EU Regulators Green Light Dow and DuPont Merger

While it was announced over a year ago, the Dow Chemical Co and DuPont Co merger only yesterday won approval from the European Union. This &77 billion merger of two of the biggest—and oldest—US chemical producers will likely leave very few incentives to produce any new pesticides and herbicides in the foreseeable future, but it is only one of three mega mergers currently in negotiations within this industry, which would reduce the number of companies from six to three.

The other two pending deals are: Bayer AG to buy Monsanto Co and China National Chemical Corporation to buy Syngenta AG.

The European Commission warrants, however, that asset sales in this deal will ensure better competition in the sector and, perhaps more importantly, will benefit European farmers as well as European consumers.

Indeed, European Competition Commissioner Margrethe Vestager notes, “We need effective competition in this sector so companies are pushed to develop products that are ever safer for people and better for the environment. Our decision today ensures that the merger between Dow and DuPont does not reduce price competition for existing pesticides or innovation for safer and better products in the future.”

For the deal, Dow will sell two of its acid co-polymer manufacturing plants (one in Spain and the other in the United States) and will also contract with a separate entity to buy ionomers. This third party is likely to be SK Innovation, of South Korea.

In a market note, Bernstein analysts advise: “The main surprises here are the inclusion of the pesticides and the exclusion of any kind of seed assets,” adding also that they expect the EU will have concern over seed sale concentration, eventually requiring that Dow should divest its corn seeds business. “We see the required divestments here as smaller than we originally expected, due to the exclusion of seed assets,” the analysts add.

Antitrust experts, on the other hand, warn that regulator’s demand to sell large swathes of R&D facilities could set a new benchmark for deals in the future.
Friends of the Earth Europe lobbying group criticized the decision, of course, warnign that this (and the other two pending deals) would result in three companies controlling approximately 70 percent of the world’s agrichemicals and at least 60 percent of all commercial seeds.

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