Event Driven Takeaways
- Two people briefed on the matter told Event Driven that the DOJ plans to hold a meeting with BASF on Friday to discuss the proposed remedies for Monsanto/Bayer. One of the people briefed noted that some in DOJ leadership consider the proposed remedy to be extremely complex.
- BASF is the most likely buyer of any additional divestitures from Bayer, according to a former DOJ antitrust attorney. The former attorney also said that BASF’s position as one of the only acceptable buyers gives it pricing leverage in negotiations.
- Outside attorneys and economists agree that some of the companies’ vegetable seed businesses and their digital farming platforms are likely areas of concern for the DOJ.
The DOJ plans to meet with BASF on Friday to discuss the DOJ’s proposed remedies in Bayer’s buyout of Monsanto, according to two people briefed on the matter. One of the people briefed noted that some in DOJ leadership consider the proposed remedy to be extremely complex.
Outside attorneys and economists said the DOJ will likely address issues relating to vegetable seeds and digital farming assets in the Friday meeting with BASF.
"There is definitely always some back and forth between the parties and the government and the potential purchasers over what is going to be given up,” according to an antitrust attorney who has represented one of the companies involved. “And that is often a moving target. There are often situations where the government thinks the buyer needs something that the buyer may not want."
While BASF agreed to purchase some of Bayer’s seeds in October - including Bayer’s soy, cotton, canola and rapeseed lines - the DOJ may still see problems with the companies’ corn seeds, the price of which would increase by almost 3 percent post-merger, according to a study published by Texas A&M University in 2016.
“What [the DOJ is] worried about is that if it’s the same company that’s developing a strain of a certain seed whether it’s a vegetable or whatever, and if that same company is the same one that is developing herbicides, that leaves open the possibility of bundling,” said Randy Gordon, a professor of agricultural economics at Texas A&M University School of Law and a former Antitrust Division staffer.
Event Driven
previously reported that the DOJ and the EC could require Bayer to divest further assets to win deal approval, with digital farming as a potential source of concern particularly for the EC. Both companies have strengthened their digital farming platforms in recent years, using satellite technology and inputted farming data to provide farmers with estimates of which seeds to plant where. Monsanto in particular has spent the past few years buying up smaller digital farming businesses, such as the European farm management software company VitalFields in 2016.
A source close to the companies noted that the EC had failed to take issue with digital farming platforms in its previous review of Dow-DuPont’s merger. The source also noted that the EC had failed to make clear to Bayer or Monsanto what specific issues it saw with their own digital farming platforms. “It could be the case that the DOJ sees issues with the digital farming tools of the companies,” the source added.
Outside antitrust economists previously told Event Driven that a possible antitrust concern presented by the companies’ digital farming platforms is the inability of farmers to use their inputted data if they decide to switch to another service provider. Additionally, a former FTC antitrust staffer also said the merged company could use its combined portfolio power to make its digital farming platform exclusively compatible with its own seeds and herbicides, directing farmers which Bayer-Monsanto seed to plant with which Bayer-Monsanto pesticide. This would make it costly for farmers to switch to another service provider.
Adding to the complexity of the DOJ’s consideration of the proposed remedy package could be certain vertical aspects of the deal, according to the antitrust attorney who has represented one of the companies involved. "My sense is it probably has some horizontal and vertical aspects to it,” the attorney said. “And given [DOJ antitrust head Makan Delrahim’s] positions in AT&T and the speech he gave about behavioral relief versus structural relief, I suspect that's part of what's going on in the background."
BASF is the most likely buyer of anymore divestitures in the deal, said Peter Carstensen, a professor at University of Wisconsin Law School and a former DOJ antitrust attorney. “One issue that the companies have is that they’ve only got one real buyer out there for any further divestitures: BASF,” Carstensen said, noting that this position gives BASF some leverage in negotiations. “BASF can name their price in the case of further necessary sell-offs.”
Liam Condon, who manages the Monsanto deal for Bayer, also serves as president of Bayer’s Crop Science division, home of the assets reportedly being auctioned. Condon could not be reached for comment but is involved in the merger process, according to a Bayer spokesperson. The spokesperson declined to comment on Bayer’s plans for future divestitures.
Other antitrust bodies have also recently given close scrutiny to the deal. The Competition Commission of India last week
said it is requiring Bayer to publish details of the proposed merger and is
inviting comments on the deal. Brazil’s CADE is also undertaking an extended review of the transaction.
The DOJ and Monsanto declined to comment, while BASF could not be reached in time for this story’s publication.
Event Driven's coverage of this transaction can be found
HERE.
--Matt Tracy, Ryan Lynch and Nathaniel Baker