EC Opens Investigation into Dow and DuPont Merger on Competition Concerns
12 Aug 2016 --- The European Commission has opened an in-depth probe to assess whether the proposed $130 billion merger of Dow and DuPont is in line with the EU Merger Regulation. The Commission will investigate further whether the deal may reduce competition in areas such as crop protection, seeds and certain petrochemicals.
Commissioner Margrethe Vestager, in charge of competition policy, said: “The livelihood of farmers depends on access to seeds and crop protection at competitive prices. We need to make sure that the proposed merger does not lead to higher prices or less innovation for these products.”
The proposed merger between Dow and DuPont, both of the US, would create the world's largest integrated crop protection and seeds company. It would combine two competitors with leading herbicides and insecticides portfolios and with a strong track record of bringing innovative crop protection and seeds products to the market. It would also create a leading integrated producer of certain petrochemical products that are widely used in packaging and adhesive applications. The transaction would take place in industries that are already globally concentrated.
The Commission's initial market investigation identified preliminary concerns in the following markets:
Crop protection: Dow and DuPont both have a strong portfolio of herbicides for a number of crops (e.g. cereals, beets and oilseed rape), as well as of insecticides, particularly those used against chewing insects. The Commission has preliminary concerns that the proposed merger could reduce competition on these markets and that the reduction in the intensity of competition may have an impact on price, quality, choice and innovation.
The Commission's investigation will also be looking into Dow and DuPont's activities in nematicides, which are products used to protect against nematode worms, as well as into the companies’ product pipelines in fungicides.
Finally, the Commission also has preliminary concerns that the merger may lead to a reduction of innovation in crop protection as a whole. Dow and DuPont are important innovators in the crop protection industry, which is characterised by a limited number of global companies with significant R&D capabilities. The transaction would lead to the elimination of one of the few companies able to develop and launch new active ingredients.
Seeds: Dow and DuPont both develop so-called “gene editing” technologies that could be used to materially accelerate the breeding of new seed varieties. The Commission has preliminary concerns that, after the proposed transaction, the companies may have fewer incentives to license these technologies to competitors or may make the development of competing technologies more difficult.
The merged entity would hold both a broad portfolio of crop protection products and one of the leading global market positions in seeds, making it the largest integrated company in the industry. The Commission is investigating whether competitors' access to distributors of crop protection products and seeds could become more difficult if Dow and DuPont were to tie their sales of crop protection products and seeds.
Petrochemical products - polyolefins and monomers: Dow and DuPont are strong suppliers of specialty polyolefins, which are thermoplastics derived from petrochemical products and widely used in packaging and adhesive applications. The Commission is investigating the effect of eliminating one competitor and creating new vertical links in these concentrated markets.
The transaction was notified to the Commission on 22 June 2016. The Commission now has 90 working days, until 20 December 2016, to take a decision. The opening of an in-depth inquiry does not prejudge the final result of the investigation.
On 20 July 2016, Dow and DuPont submitted commitments to address some of the Commission’s preliminary concerns. However, the Commission considered these commitments insufficient to clearly dismiss its serious doubts as to the transaction's compatibility with the EU Merger Regulation. The Commission therefore did not test them with market participants.
Given the worldwide scope of Dow and DuPont's activities, the Commission is cooperating closely with other competition authorities, notably with the Department of Justice in the US and the antitrust authorities of Brazil and Canada.
In a joint statement in response to the announcement, DuPont and Dow confirmed that the European Commission (EC) has initiated a Phase II review for the proposed merger of equals transaction of the two companies. “As stated previously, the companies expected a thorough review and are working closely with relevant regulators, including the EC. The companies continue to believe the merger is procompetitive and good for customers and consumers.”
“The Phase II review is a common next step in the review process for a transaction of this size and scope under EU Merger Regulation. Under this regulation, Phase II generally provides the Commission with 90 working days to review the pending transaction. Dow and DuPont will continue to work constructively with the Commission to address their concerns and to obtain clearance for the merger, which we are confident will be achieved.”
The statement concluded: “On June 22, DuPont and Dow began the formal process to obtain merger approval from the European Commission by submitting the required filing to obtain regulatory clearance in connection with the proposed merger of equals. Dow and DuPont continue to expect the transaction to close by year-end 2016, subject to satisfaction of customary closing conditions, including receipt of regulatory approvals.”
DuPont and Dow revealed that they were taking separate steps to restructure their respective businesses in the move towards their $130 billion mega chemical merger, shortly after the deal was announced in mid-December 2015. The merger announcement was followed by news that DuPont was aiming to take $700m of costs out of the business, partly by shrinking its 63,000-strong workforce by 10 percent.
