Bayer AG (BAYRY) and Monsanto Co. (MON) will have an army of legal advisers to aid in what is expected to be arduous legal battle to clear U.S. and other competition authorities around the globe in completing their recently announced $66 billion merger.
The biggest hurdle may be that the DOJ and other regulators can't view this acquisition in isolation. This deal is only one of four pending blockbuster mergers under review in the ag chemical space. Besides the Syngenta deal, the DOJ is also considering Dow Chemical Co.'s (DOW) planned $130 billion acquisition of DuPont Co. (DD) and it will soon have before it the Agrium Inc. (AGU) and Potash Corp. of Saskatchewan Inc. (POT) . The DOJ on Aug. 31 also filed a lawsuit to block Deere & Co.'s (DE - Get Report) $190 million acquisition of Precision Planting LLC from Monsanto in order to preserve competition in the market for high-speed precision planting systems in the U.S.
Farm and consumer groups have already lined up to oppose Bayer's move including the National Farmers Union President Roger Johnson. "The merger between Bayer and Monsanto marks the fifth major deal in agriculture in the last year."
The Senate Judiciary Committee will hold a hearing on the agriculture merger wave on Tuesday, Sept. 21.
That the merger is predicted to close at the end of 2017 also shows that the parties know they will have to endure a long review with regulators. However, the companies predict that they will ultimately win approval. The deal has a $2 billion reverse breakup fee that would be due to Monsanto if regulatory approval can't be obtained. At only 3% of the transaction value that's a fairly standard termination fee for the target--a sign the company didn't demand a high level or protection against the deal's rejection by regulators.
In a conference call with reporters Wednesday the companies acknowledged that they will have to make divestitures but refused specify which units are likely to be sold to win regulators' approval. "We don't want to preempt a regulatory discussion," said Bayer CEO Werner Baumann.
Baumann conceded there have been numerous published reports predicting divestitures that will have to be made, most notably in the cottonseed area.
According to a report authored by antitrust lawyers Maurice Stucke and Allen Grunes at the Konkurrenz Group last month, without a divestiture the merger would violate a 2007 DOJ order by reuniting Monsanto with the Stoneville brand, which it was forced to divest to Bayer as part of the Justice Department's approval of Monsanto's acquisition of Delta & Pine Land Co.
For the most part, however, Baumann said the companies' product and geographic footprints are complimentary and the areas where they directly complete are limited.
Bayer and Monsanto officials didn't directly address whether they would consent to behavioral conditions to address small seed companies' complaints about difficulties they face licensing genetically modified traits developed by the major seed companies.
The company officials also said they intend to make a voluntary filing for approval by the Committee on Foreign Investment in U.S., a government panel charged with reviewing foreign acquisitions of U.S. assets for national security risks.
Bayer is being represented by Sullivan & Cromwell LPP while Monsanto has enlisted a high-powered lineup of antitrust lawyers from multiple firms, all of whom have advised the company in one capacity or another for years. Arnold & Porter LLP is lead antitrust firm for Monsanto. Monsanto is also receiving input from at Wilmer Cutler Pickering Hale and Dorr LLP; Paul Hastings LLP; and Paul, Weiss, Rifkind, Wharton & Garrison LLP.
--David Marcus contributed to this story.
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