European regulators put Dow DuPont deal under microscope

The European Commission is launching an in-depth antitrust review of the $130 billion merger between Dow Chemical and DuPont. The regulators say that the merger will join business in markets—agricultural chemicals and petrochemicals—which are already concentrated in a few competitors.

The EC’s concerns lie primarily in the combination of Dow’s and DuPont’s operations in seeds and crop protection chemicals. The two firms would together have $16 billion in annual sales, making DowDuPont the largest firm in the sector, ahead of current leader Monsanto.

The EC will look into overlaps between the two companies in herbicides and insecticides, especially insecticides that work against chewing insects. The body will also investigate the two firms’ businesses in nematicides, used against nematodes, and fungicides.

The regulators have a broader worry that the merger will have a deleterious effect on agricultural innovation by eliminating a firm able to develop new active crop protection ingredients. The EC says DowDuPont might not be as inclined to license new seed technologies to third parties as Dow and DuPont each were on their own.

“The livelihood of farmers depends on access to seeds and crop protection at competitive prices,” says Commissioner Margrethe Vestager. “We need to make sure that the proposed merger does not lead to higher prices or less innovation for these products.”

In addition to the scrutiny over agricultural chemicals, the EC says it will also look at specialty polyolefins used in packaging and adhesive applications. Both Dow and DuPont have leading businesses in these areas.

Dow and DuPont have already tried to address some of the EC’s issues. “However, the Commission considered these commitments insufficient to clearly dismiss its serious doubts,” the EC said.

In a joint statement, Dow and DuPont promise they “will continue to work constructively with the Commission to address their concerns and to obtain clearance for the merger.” The companies say they are confident they will win merger clearance.

The EC has until December 20 to complete its review of the deal. Dow and DuPont shareholders overwhelmingly approved the deal last month.

The Dow and DuPont deal may face obstacles across the Atlantic as well. In June, Iowa Senator Chuck Grassley (R) wrote to the U.S. Department of Justice, asking it to closely scrutinize the deal. Like the EC, he voiced reservations about the deal’s effect on competition in crop protection chemicals and seeds.

The EC says it is cooperating with DOJ as well as with Brazilian and Canadian regulators in its perusal of the transaction.

Regulators both in the U.S. and European are contending with a wave of consolidation in agricultural chemicals. In a deal expected to be approved by the end of this year, ChemChina is buying Syngenta for $43 billion. Bayer has made an unsolicited $65 billion bid for Monsanto, which is reportedly in talks to purchase BASF’s agricultural chemicals business.