Competition authorities around the world are grappling with one of the largest mergers in history – the combination of agricultural biotechnology giants Monsanto and Bayer. This mammoth deal, now in a state of suspended enforcement animation at many enforcement agencies around the world, would reduce the number of large agricultural biotech firms from five to four, and create the largest player in the markets for genetic crop traits, seeds, and agrochemicals.
The Monsanto-Bayer merger would cap off consolidation in a sector that has been beset by growing concentration and vertical integration for years. This is evidenced most recently by the completed mergers of other leading industry players, Dow-DuPont and Syngenta-ChemChina, as well as by the long series of smaller acquisitions over the past two decades.
The American Antitrust Institute (AAI) has long advocated with other leading consumer and farm groups on the competitive and consumer harms from consolidation in agricultural biotechnology. The Monsanto-Bayer merger creates a complex array of horizontal and vertical competitive issues. It eliminates head-to-head competition in innovation and product markets that include cotton, soybeans, canola, and vegetables.
Integrating traits, seeds, and chemicals in a single “platform” creates powerful incentives to keep out smaller rivals that could bring innovation and choice to farmers and consumers. And, the merger would enhance Monsanto-Bayer’s ability to appropriate and lock up valuable farm data and use it to leverage their enhanced market power.
The potential competitive harms from the Monsanto-Bayer deal are far-reaching – concerns that are reinforced by the adverse effects of previous mergers. Farmers stand to pay higher prices and lose choice in traits and seeds. They risk losing access to their valuable farm data that enables them to make independent technology and cropping choices. Consumers could pay higher prices for crop-based products.
The merger would also eliminate diversity in the food system by removing important competition, thus exposing it to instability and higher risks of failure from weather and other shocks. And the new Monsanto-Bayer platform of traits-seeds-chemical would raise barriers to development of alternative food systems that provide important choice for consumers.
In pushing their deal along, the companies have offered antitrust authorities a smattering of proposed divestitures that cross multiple business activities, including vegetables, genetic technologies, R&D, and crop seed. Their proposal is essentially “musical chairs,” or a game of shifting assets to another market incumbent, as opposed to a potential market entrant. The latter, as enforcers know, would more effectively dilute both the higher market concentration and tighter vertical integration that would follow the merger.
While a fix may be enticing to antitrust authorities that are stretched for resources, enforcers should “just say no” and move to block the deal if the companies do not stand down. There is a compelling reason for this. The complexity of a remedy correlates strongly with the complexity and size of a merger. Such is the case with Monsanto-Bayer. A potential buyer will inherit a diverse package of assets. The buyer will be expected to hit the ground running across all areas of market activity, function independently without the help of the merging parties, successfully maintain the assets, and in relatively short order re-inject the competition that is lost by the merger. That is a tall order indeed.
The risk of failure in successfully executing a remedy is compounded by other, more subtle problems. For example, consider that at the same time Monsanto-Bayer managers are integrating two enormous business ecosystems, they are also undoing key businesses by spinning off assets to an entrenched rival. This fundamentally changes profit-incentives, relationships between affiliates, and other key factors that directly affect post-merger operations.
But there is more. Simultaneously, Monsanto and Bayer will attempt to make good on their promises to deliver cost savings and consumer benefits. This requires fundamental changes to managerial focus, scope, and strategy and dramatically increases the burden on managers charged with complex multitasking. As a busy juggler invariably drops a ball, the greater are the chances that Monsanto and Bayer will as well.
These risks conflict directly with the government’s requirement that an effective remedy fully replace the competition lost by a merger. Just look at the Safeway-Albertsons and Hertz-Dollar Thrifty mergers. Both are recent cases of failed remedies in concentrated markets. Acquirers were ostensibly viable buyers but were unable to maintain divested assets and subsequently exited the market.
Both the U.S. Department of Justice and Federal Trade Commission now appear to recognize the growing body of evidence surrounding the difficulty of remediating anticompetitive mergers in concentrated markets. In other mega-deals, including Sysco-US Foods, Staples-Office Depot, and Halliburton-Baker Hughes, U.S. enforcers moved to block (and prevailed in federal court) or forced their abandonment. An inability to find a remedy that would fully restore competition was a major factor in each.
The long-overdue debate over merger remedies is heating up. Enforcers are publicly expressing concerns over the ineffectiveness of conduct remedies, their inherently regulatory nature, and the burden they place on the agencies and courts. Lessons learned from previous conduct remedies will undoubtedly inform the proposed merger of AT&T and Time Warner.
At the same time, structural remedies have their own problems. There is growing evidence regarding the limitations of certain types of structural remedies and the inherent difficulty of finding effective structural fixes for mega-mergers. As recently failed mergers demonstrate, the Monsanto-Bayer deal should be in the crosshairs of this debate and the central focus of enforcers’ concern. Some deals are too big to fix. This is one of them.
