What's going on?
On Friday, German chemicals conglomerate Bayer agreed to sell off parts of its crops business in order to ease regulators’ concerns that its $57 billion acquisition of American agri giant Monsanto would create a company that has too much power in its industry.
What does this mean?
A few months ago, regulators highlighted their concerns that Bayer and Monsanto are both major suppliers to the agricultural industry. The proposed takeover could harm the principle of fair competition: fewer companies in a market leads to less competition to push prices down (and is thus bad news for people buying their products). That means regulators could prevent the Bayer-Monsanto takeover in order to protect consumers.
Bayer is responding to these concerns by kickstarting a new competitor in the seeds market and selling some of its crops business to BASF, another German conglomerate. The sale is contingent on the approval of Bayer’s takeover of Monsanto, however.
Why should I care?
For markets: The purchase of Bayer’s crop business would create a crops giant in Europe.
BASF is one of Europe’s largest companies, and the $7 billion acquisition of Bayer’s crop business is the biggest in its history – so this is a major deal! The thinking is that BASF will be able to profitably pair the sale of its own pesticides with Bayer’s seeds, which have been designed for use alongside those chemicals.
The bigger picture: Consolidation has been a major theme in the chemicals industry this year.
Back in March, antitrust regulators in Europe and the US cleared the merger of Dow Chemical and DuPont, and just a few months later they agreed on the tie-up of ChemChina and Syngenta. The number of mergers and acquisitions going down in the chemicals sphere has likely made it harder for Bayer and Monsanto to win over regulators as concerns about competition emerge. However, if Bayer sells off enough parts of its business to ensure fair competition (like the others did), they might have a better shot.