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From Antitrust Law Daily, June 15, 2017

Dow, DuPont agree to divestitures for merger clearance

By Peter Reap, J.D., LL.M.

The Justice Department announced today that it will require The Dow Chemical Company (Dow) and E.I. DuPont de Nemours & Co. (DuPont) to divest multiple crop protection and two petrochemical products to proceed with their proposed merger valued at about $130 billion. The Justice Department’s Antitrust Division, along with the offices of three state attorneys general (Iowa, Mississippi, and Montana), filed a civil antitrust complaint today in the U.S. District Court for the District of Columbia to enjoin the proposed transaction, along with a proposed final judgment that, if approved by the court, would resolve the Department’s competitive concerns.

In an announcement, the Department said that, without the divestitures, the proposed merger likely would reduce competition between two of only a handful of chemical companies that manufacture certain types of crop protection chemicals and the only two U.S. producers of acid copolymers and ionomers, potentially harming U.S. farmers and consumers.

"The Department of Justice conducted a thorough investigation into this merger," said Acting Assistant Attorney General Andrew Finch of the Justice Department’s Antitrust Division. "As originally proposed, the merger would have eliminated important competition between Dow and DuPont in the development and sale of insecticides and herbicides that are vital to American farmers who plant winter wheat and various specialty crops. In addition, it would have given the merged company a monopoly over ethylene derivatives known as acid copolymers and ionomers that are used to manufacture many products, including food packaging. The remedies obtained by today’s settlement, including the divestiture of DuPont’s market-leading Finesse and Rynaxypyr crop protection products, will preserve vigorous competition in the sale of these products and benefit American farmers and consumers alike."

European approval. On March 27, 2017, the European Commission (EC) approved under the EU Merger Regulation the proposed Dow and DuPont merger. The approval is conditional in particular on the divestiture of major parts of DuPont's global pesticide business, including its global R&D organization, the EC announced. Dow and DuPont announced their agreement to combine to form the world's largest integrated crop protection and seeds company in December 2015.

Senate hearing. On September 20, 2016, the Senate Judiciary Committee held a hearing on "Consolidation and Competition in the U.S. Seed and Agrochemical Industry." Known as the "Big Six," Monsanto, Syngenta, Bayer, DuPont, Dow, and BASF together "dominate the markets for seed, biotechnology seed traits, and other agricultural chemical inputs," commented Senator Patrick Leahy (D-Vt), who opened the hearing. Executives from DuPontDow, and other companies testified that these mergers are needed to address major challenges facing society, such as increasing the efficiency and productivity of farmers, improving sustainability, mitigating the impact of climate change, and meeting the needs of a growing global population, which is expected to reach 10 billion people by 2050.

Complaint details. According to the Justice Department’s complaint, Dow and DuPont are two of only a few significant competitors in the markets for broadleaf herbicides for winter wheat and insecticides for chewing pests. Specifically, DuPont’s Finesse product is the market leading broadleaf herbicide for winter wheat, and Dow recently introduced a new broadleaf herbicide called Quelex to compete with Finesse. DuPont’s Rynaxypyr line of products, which are marketed in the United States under the brand names Altacor, Coragen, and Prevathon, are the top selling insecticides for chewing pests, and compete with Dow’s methoxyfenozide products, sold in the United States under the Intrepid brand, and Dow’s spinetoram products, sold under the Delegate and Radiant brands. The complaint alleges that the loss of competition between Dow and DuPont would result in higher prices, less favorable contractual terms, and a reduced incentive to innovate for each of these products.

The department’s complaint further alleges that Dow and DuPont are the only two U.S. suppliers of acid copolymers and ionomers, both of which are high-pressure ethylene derivative products that are important inputs for food packaging and other plastics applications. According to the complaint, customers for each of these products would have no choice but to accept higher prices from the merged company following the transaction.

Proposed final judgment terms. Under the terms of the proposed final judgment, DuPont must divest its market-leading Finesse herbicide and Rynaxypyr insecticide products to a buyer to be approved by the United States. The department said that the divestiture of these products, which have total combined annual U.S. sales of over $100 million, would preserve competition in U.S. markets for broadleaf herbicides for winter wheat and insecticides for chewing pests. The proposed settlement further requires Dow to divest its U.S. acid copolymers and ionomers business to a buyer approved by the United States to remedy the merger’s harm in the U.S. markets for acid copolymers and ionomers.

Attorneys: Lowell R. Stern for U.S. Department of Justice. Clifford Aronson (Skadden, Arps, Slate, Meagher & Flom) for E.I. DuPont de Nemours & Co. George S. Cary (Cleary, Gottlieb, Steen & Hamilton, LLP) for The Dow Chemical Co.

Companies: E.I. DuPont de Nemours & Co.; The Dow Chemical Co.

MainStory: TopStory Antitrust AcquisitionsMergers FederalTradeCommissionNews AntitrustDivisionNews

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