Antitrust Law Daily Wrap Up, ANTITRUST NEWS: EC investigates proposed merger between Dow, DuPont, (Aug 12, 2016)

By Linda O’Brien, J.D., LL.M.

The European Commission (EC) has opened an in-depth investigation to assess if the proposed merger of Dow Chemical and E.I. du Pont de Nemours (DuPont) is in line with the European Union (EU) merger regulation or whether the deal may reduce competition in areas such as crop protection, seeds, and certain petrochemicals, the agency announced yesterday.

Dow is a diversified chemicals company headquartered in the United States. It is the parent company of the Dow group, which is active in plastics and chemicals, agricultural sciences, and hydrocarbon and energy products and services. DuPont, also headquartered in the United States, researches, develops, produces, distributes, and sells a variety of chemical products, plastics, agro-chemicals, paints, seeds, and other materials.

According to the EC, the proposed merger between Dow and DuPont would create the world's largest integrated crop protection and seeds company. It would combine two competitors with leading herbicides and insecticides portfolios and with a strong track record of bringing innovative crop protection and seeds products to the market. It also would create a leading integrated producer of certain petrochemical products that are widely used in packaging and adhesive applications. The transaction would take place in industries that are already globally concentrated.

The EC's initial market investigation identified preliminary concerns in the three markets. In the crop protection market, Dow and DuPont both have a strong portfolio of herbicides for a number of crops (e.g. cereals, beets and oilseed rape), as well as of insecticides, particularly those used against chewing insects. The EC has preliminary concerns that the proposed merger could reduce competition on these markets and that the reduction in the intensity of competition may have an impact on price, quality, choice, and innovation. The investigation also will be looking into Dow and DuPont's activities in nematicides, which are products used to protect against nematode worms, as well as into the companies’ product pipelines in fungicides.

Finally, the EC has preliminary concerns that the merger may lead to a reduction of innovation in crop protection as a whole. Dow and DuPont are important innovators in the crop protection industry, which is characterized by a limited number of global companies with significant R&D capabilities. The transaction would lead to the elimination of one of the few companies able to develop and launch new active ingredients.

In the seed market, Dow and DuPont both develop so-called "gene editing" technologies that could be used to materially accelerate the breeding of new seed varieties. The EC has preliminary concerns that, after the proposed transaction, the companies may have fewer incentives to license these technologies to competitors or may make the development of competing technologies more difficult. The merged entity would hold both a broad portfolio of crop protection products and one of the leading global market positions in seeds, making it the largest integrated company in the industry. The EC is investigating whether competitors' access to distributors of crop protection products and seeds could become more difficult if Dow and DuPont were to tie their sales of crop protection products and seeds.

In the petrochemical products market, Dow and DuPont are strong suppliers of specialty polyolefins, which are thermoplastics derived from petrochemical products and widely used in packaging and adhesive applications. The EC is investigating the effect of eliminating one competitor and creating new vertical links in these concentrated markets.

"The livelihood of farmers depends on access to seeds and crop protection at competitive prices," said Commissioner Margrethe Vestager, in charge of competition policy. "We need to make sure that the proposed merger does not lead to higher prices or less innovation for these products."

The EC was notified of the transaction on June 22 and now has until December 20 to make a decision. On July 20, Dow and DuPont submitted commitments to address some of the EC’s preliminary concerns. However, the EC considered these commitments insufficient to clearly dismiss its serious doubts as to the transaction's compatibility with the EU merger regulation. Given the worldwide scope of Dow and DuPont's activities, the EC is cooperating closely with other competition authorities, including the U.S. Department of Justice and the antitrust authorities of Brazil and Canada.

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

News: Antitrust