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From Antitrust Law Daily, March 27, 2017

EC clears Dow Chemical, DuPont merger, subject to conditions

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

The European Commission (EC) today has approved under the EU Merger Regulation the proposed merger between U.S.-based chemical companies Dow Chemical and E.I. du Pont de Nemours (DuPont). 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 has announced.

Dow and DuPont announced their agreement to combine to form the world's largest integrated crop protection and seeds company in December 2015.

Today’s decision followed an in-depth review of the merger that began on August 11, 2016. The Commission had concerns that the merger as notified would have reduced competition on price and choice in a number of markets for existing pesticides. Furthermore, the merger would have reduced innovation. Innovation, both to improve existing products and to develop new active ingredients, is a key element of competition between companies in the pest control industry, where only five players are globally active throughout the entire research & development (R&D) process, the EC said.

The commitments submitted by Dow and DuPont address these concerns in full to the satisfaction of the EC. The parties will remove the overlap in markets, where concerns were raised, by divesting the relevant DuPont pesticide businesses. They will also divest almost the entirety of DuPont's global R&D organization. The Commission concluded that the divestment package enables a buyer to sustainably replace DuPont's competitive effect in these markets and continue to innovate, for the benefit of European farmers and consumers.

Regarding certain petrochemical products where both companies are important players, the parties will divest relevant assets in Dow's petrochemical business to preserve effective competition.

The Commission had three main categories of competition concerns: (1) significantly reducing competition in a number of markets for existing pesticides; (2) significantly reducing innovation competition for pesticides; and (3) significantly reducing competition for certainpetrochemical products.

The parties offered a set of commitments, which address the Commission's competition concerns in full, including:

  • The parties will divest a significant part of DuPont's existing pesticide business, including its R&D organization; and
  • Dow will divest its two manufacturing facilities foracid co-polymers in Spain and in the US, as well as the contract with a third party through which it sources ionomers that it sells to its customers.

"Pesticides are products that matter—to farmers, consumers and the environment," said Commissioner Margrethe Vestager, in charge of competition policy. "We need effective competition in this sector so companies are pushed to develop products that are ever safer for people and better for the environment. Our decision today ensures that the merger between Dow and DuPont does not reduce price competition for existing pesticides or innovation for safer and better products in the future."

In her statement, Commissioner Vestager detailed the EC’s concerns that, as proposed, the merger would have reduced competition for existing pesticides, reduced innovation for the future, and that the merged entity would have a large share in the markets for two types of petrochemical products in which they were now significant competitors. "Dow and DuPont's commitments fully address our competition concerns. They allow us to approve the transaction under EU merger rules," she said. Vestager added that, in connection with this merger, the EC has worked closely with competition authorities in many different countries, which are looking at how the merger affects their own markets.

In the U.S., the Senate Judiciary Committee held a hearing in September 2016 on "Consolidation and Competition in the U.S. Seed and Agrochemical Industry." A theme of the hearing was that the proposed mergers between Dow and DuPont, ChemChina and Syngenta, PotashCorp and Agrium Inc., and Monsanto and Bayer AG, raised questions regarding competition, food supply, nutrition, and the livelihood of the U.S. farm economy. The proposed merger of Dow and DuPont is also getting a close look from the Australian Competition and Consumer Commission (ACCC). On November 3, 2016, the ACCC released its Statement of Issues, disclosing the agency's preliminary views on the proposed merger.

Companies: Dow Chemical Co.; E.I. du Pont de Nemours and Co.

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