Syngenta has so far spurned takeover advances by rival agribusiness giant Monsanto, but the possible union has raised concerns about diminished competition, experts say.
The merged company would combine Syngenta’s powerful pesticide operations with Monsanto’s supremacy in biotech traits, likely triggering scrutiny from U.S. antitrust regulators, experts say.
“If there were further concentration, they may dominate the market in a way that’s not desirable,” said Jean-Paul Chavas, an agricultural economist specializing in the biotech industry at the University of Wisconsin.
Monsanto is seeking to buy Syngenta in a stock-and-cash deal worth nearly $45 billion and recently upped the offer with a $2 billion break-up fee if the deal is nixed.
Subject to negotiations, the new company would be re-named and registered outside the United States, perhaps in the United Kingdom, Monsanto said. Monsanto’s headquarters in St. Louis, Mo., would be maintained.
Sara Miller, a Monsanto spokesperson, said the proposed combined company would be an even stronger partner to farmers.
“The combination would offer the opportunity to accelerate innovation, putting meaningful technology and additional choice into the hands of farmers faster than what any in the industry are doing today,” she said.
Syngenta, now based in Switzerland, has rejected both overtures, citing an “inadequate price” as well as the risk of regulatory complications.
The prospect of the U.S. Department of Justice objecting to the merger is realistic, said Peter Carstensen, a law professor specializing in agricultural antitrust at the University of Wisconsin.
“Monsanto’s been on their radar screen for some time,” he said.
There has already been a lot of consolidation in the biotechnology industry, so the loss of another source of genetically engineered seed does not bode well for growers, said Chavas.
“Farmers paying higher prices is a likely outcome,” he said.
Combining Monsanto and Syngenta could reduce costs by eliminating some redundant jobs and duplicative research expenses, but it’s unlikely those savings would be passed on to farmers, Chavas said.
Farmers have been willing to pay more for biotech seed due to the reduced cost of weed and insect control, he said.
The possibility of fewer competitors in the biotech field, however, raises questions about the merged company’s incentive to innovate at the same pace, said Carstensen.
While Monsanto said it would sell off Syngenta’s seed business after the merger, the deal would nonetheless eliminate one of the major three biotech companies, he said.
Regulators would look particularly askance at an asset sale to Dupont, as this would amount to two major competitors “carving up” a mutual rival, Carstensen said.
On the other hand, if the sale of Syngenta’s seed assets created a strong, viable competitor for Monsanto and Dupont, antitrust regulators would have fewer objections to the merger, he said.
“It seems to me, if they do that, the chances of getting it through are reasonably good,” Carstensen said.
If the government decided to file a legal complaint seeking to block the merger on antitrust grounds, it would require some “pretty gutsy enforcement,” he said.
To make a strong case, regulators would want to use internal documents to show that Monsanto intended to destroy competition by taking over Syngenta, he said.
Such a finding would demonstrate that the anti-competitive effect is more than “some pointy-headed bureaucrat’s theory,” Carstensen said.
It’s possible the Department of Justice would sign off on the deal based on Monsanto’s planned asset sell-off, but it’s more likely the government would take the company to court to compel additional concessions, he said. In that case, the company could fight the complaint, settle, or simply walk away from the merger.
“We expect a thorough regulatory process, and are committed to working through the process to addressing any questions regulators might have.” Miller said.
Biotech critics such as the Center for Food Safety, a nonprofit involved in litigation over genetic engineering, worry that a potential merger would spur the development of more herbicide-resistant crops.
Crops resistant to glyphosate have caused farmers to spray more of the chemical, leading to increased weed tolerance of the herbicide, said Bill Freese, the group’s science policy analyst.
As a result, biotech developers want to commercialize crops resistant to additional herbicides, he said.
Syngenta is a major producer of several common herbicides, including paraquat, atrazine and metolachlor, so a merger would give Monsanto a larger footprint in the chemical market, Freese said.
“I think that’s the biggest driver behind this merger,” he said. “It would give Monsanto more incentive than they have at present to develop herbicide-resistant crops.”