Bayer-Monsanto Analysis: EU Approval Is About Competition
(Bloomberg View) -- The European Union's competition commissioner, Margrethe Vestager, has a reputation as something of an activist because of her willingness to take on U.S. tech giants. And yet she has approved what is, from a leftist activist point of view, a particularly evil deal, Germany-based Bayer's acquisition of U.S.-based Monsanto.
The $66 billion deal creates an incredible concentration in the seed and pesticide markets. If it's approved in the U.S., too, the three biggest companies in this market -- Bayer-Monsanto, ChemChina (which acquired Swiss-based Syngenta last year) and DowDuPont (the product of the two U.S. companies' 2017 merger) will together control 61 percent of it. The same firms plus German-based BASF own more than 70 percent of the pesticide market. In Europe, and in Germany in particular, a powerful lobby of civil society groups has pushed hard against the deal, saying it would concentrate too much power over the global food supply in the hands of a few giant corporations. U.S. activists also weighed in, asking Vestager to reject the "merger from hell."
And yet the European Commission agreed to the deal after Bayer promised to divest some assets and to license some of its technology to a rival. Bayer proposes to make BASF the beneficiary of most of the divestments and the license, but that will require separate approval. Neither Bayer nor Monsanto is making any big sacrifices here, and if BASF ultimately picks up the business that the new giant needs to lose, it'll all stay in the German and European family.
Vestager isn't an activist for environmental or developing world causes; she's not a left-wing hero but an EU official, working to strengthen the bloc as a global economic player. Following the mega-mergers that assured the financial strength of Bayer-Monsanto's non-EU competitors, she couldn't ruin the creation of a European champion in one of the world's most important industries.
Americans have long suspected that the EU's antitrust actions against major U.S. companies such as Intel and Google are ultimately protectionist: They aren't meant to protect consumers as much as to limit the tech giants' influence in Europe. The relatively easy approval of the Bayer-Monsanto deal despite widespread opposition will throw oil on that fire.
The U.S. is a net acquirer in cross-border deals with Europe. And the economic recovery of Europe has increased U.S. appetites for EU-based acquisitions. In response, European nations, France and Germany foremost among them, are working to create local champions capable of competing with U.S. giants.
"The Alstom and Siemens Mobility transaction is a good example of this mindset," JPMorgan wrote in its 2018 Global M&A Outlook, referring to last year's merger of the French and German railroad equipment manufacturers. "Such a transaction would have been blocked by state officials a few years ago. This is a notable change which may be replicated in other sectors where European consolidation is critical to fend off the growing competition from non-European players."
The European Commission's 2017 communication on industrial policy and reflection paper on harnessing globalization don't mention the creation of national champions -- the open advocacy of that idea is mainly the province of French politicians -- and only express worry about cross-border takeovers by state-owned (read Chinese) companies. But both documents stress the need to move European companies up the value chain and seek technological leadership.
The Bayer-Monsanto deal fulfills that requirement. The U.S. company is sitting on genetic modification and herbicide technology that may very well be evil, as critics say, but it's cutting edge technology nonetheless. Besides, one of Bayer-Monsanto's main competitors is Chinese-owned after the ChemChina-Syngenta deal. And, let's face it, U.S. companies, too, are powerful global competitors for European ones in most industries, especially research-and-development-heavy ones.
Given the Trump administration's focus on trade competition, the Bayer acquisition is as unwelcome to the U.S. as it's readily acceptable to the European Commission. The U.S. Justice Department is already demanding more divestment commitments from Bayer, and the German company has avoided forcing the U.S. regulator to fast-track the decision: It would rather go slowly than risk rejection.
Protectionist talk was rare in transatlantic business relations before Trump. Europeans are still avoiding it: They prefer the language of partnership rather than competition with the U.S. In reality, however, the competition is there, and it can't be denied. The EU will not stand in the way of major European companies' attempts to armor themselves in this competition, even if a European Commission star like Vestager must tarnish her image a little in the process.
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
Leonid Bershidsky is a Bloomberg View columnist. He was the founding editor of the Russian business daily Vedomosti and founded the opinion website Slon.ru.
For more columns from Bloomberg View, visit http://www.bloomberg.com/view.
©2018 Bloomberg L.P.