Tue 02/06/2018 13:40 PM
Event Driven Takeaways
  • The European Commission has entered the market testing phase of its Monsanto/Bayer review. The EC yesterday, Feb. 5, revised its provisional deadline to April 5.
  • The EC is talking to market participants, including ETC Group, about divestiture commitments submitted by Bayer last week. It is unclear whether the commission has found a buyer for any additional divestitures offered by Bayer.

The European Commission has begun the market testing phase of its review of Bayer’s $66 billion buyout of Monsanto. As a part of this phase, the commission is reaching out to potential buyers of assets Bayer has agreed to divest, as well as other market participants, an EC spokesperson told Event Driven.

Bayer submitted non-public “commitments” - conditions or divestitures that the companies propose to abide by for approval of their deal - to the commission on Feb. 2, according to a public disclosure on the EC’s case file for the deal. The commission’s provisional deadline for a decision was also extended to April 5 from March 5.

The EC is now in the market testing phase of its review, which involves analyzing the proposed remedies and contacting market participants to ensure that the remedies resolve any outstanding competition issues, the EC spokesperson said.

This week, EC staffers plan to contact outside market participants about these commitments, according to a source close to the matter. Among them is ETC Group, an international entity that monitors and reports on a number of issues, including the impact of agricultural mergers on consumers. The EC most recently spoke with the group in December in a phone call between commission staffers and ETC representatives about the deal.

The EC also reviews potential divestiture buyers’ business plans for the assets to be divested, in order to determine if the companies are able to take on the assets in the market, whether they have the know how or the financial background to integrate them, according to Jens-Olrik Murach, partner at Gibson Dunn in Brussels. “The commission wants to avoid seeing these businesses collapse and removed from the marketplace,” he said.

In October 2017, Bayer agreed to sell off a number of its seed and herbicide lines to rival BASF as part of its EC and DOJ antitrust approval efforts. While it is unclear whether BASF is also purchasing additional assets as part of Bayer’s commitments this month, Event Driven previously reported that the company was viewed favorably as a buyer, at least by the DOJ.

“They [BASF] certainly have the size and wherewithal to continue to invest if they choose to do so as a strategy. They will have other revenue to call upon and redirect their investment,” an industry source familiar with the deal told Event Driven. “So although you’re talking about a company that is basically starting from scratch in something like seeds, they may have the fortitude to ultimately be successful.”

The commission is less likely to reach out to smaller, grassroots market participants at this point in its review of the deal, according to Mike Dunton, founder of the private Oregon-based shop Victory Seeds. “Since we are kind of on the home garden/grass roots end of the spectrum, with companies like Bayer and Monsanto at the distant ‘agribusiness’ end, we are not in the same market class,” Dunton told Event Driven.

While Victory Seeds has not received any outreach from the commission, Dunton hopes that his business will curb one perceived harm of the deal: keeping alive older plant varieties that Bayer or Monsanto would drop from their portfolios post-merger. “[We try] to curb one aspect created by these types of corporate mergers that have been occuring on a steady and regular basis since the 1970s,” Dunton said. “We work at keeping the older plant varieties that are purposely dropped from seed lines of merged companies available.”

Another Monsanto competitor whose CEO spoke to the EC about the deal in early 2017 has not been contacted by the commission again, the competitor’s spokesperson told Event Driven.

The EC spokesperson declined to comment on the timing of the market testing phase or the specific commitments offered by Bayer.

Spokespersons for Bayer and Monsanto did not immediately comment for this story.

--Matt Tracy, Nat Baker and Ryan Lynch