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Justice Department Requires Divestitures in $1.5 Billion Merger of Monsanto and Delta & Pine Land

Doyle, Barlow & Mazard PLLC

On May 31, the Monsanto Company and Delta & Pine Land Company (“DPL”) were required to divest a significant seed company, multiple cottonseed lines, and other valuable assets in order to proceed with their $1.5 billion merger.

Monsanto was also required to change certain license agreements as a condition for proceeding with its acquisition of DPL. The DOJ said that the transaction, as originally proposed, would have caused higher prices to U.S. farmers for traited cottonseed and would have blocked or delayed development of traits for cottonseed that would compete with Monsanto. Traited cottonseed is seed that has been genetically modified to include highly desirable characteristics, such as resistance to insects or tolerance to herbicides.

In order to go forward with their proposed transaction, the merged firm must divest Monsanto’s Stoneville Pedigreed Seed Company, 20 proprietary DPL cottonseed lines, and other significant assets. Monsanto must also provide the divested Stoneville company a license as favorable as DPL’s current Monsanto license in terms of revenues, future traits, and the ability to combine or “stack” non-Monsanto traits with Monsanto traits. The merged firm will also have to divest to Syngenta Crop Protection AG a group of 43 DPL cottonseed lines that contain VipCot, Syngenta’s insect-resistant trait technology that DPL planned to begin marketing as early as 2009. Finally, the merged firm must amend certain terms in its current trait license agreements with other cottonseed companies to allow them, without penalty, to stack non-Monsanto and Monsanto traits and to sell cottonseed that includes non-Monsanto traits.

Without a remedy, the acquisition of DPL by Monsanto would pose a serious threat to competition for the sale of traited cottonseeds. The significant divestitures and licensing changes obtained by the DOJ through this enforcement action will ensure that cotton farmers benefit from competition to develop and sell high-yielding cottonseed with the most desirable traits. The DOJ hopes the settlement agreement preserve the current competition to sell traited cottonseed; prevents any significant delay in bringing cottonseed with non-Monsanto traits to the marketplace; and ensures the continued presence in the market of a firm independent of Monsanto with traited cottonseed development capabilities sufficient to serve as a platform for future trait development and commercialization.

According to the complaint, the combined company would dominate the traited cottonseed market in the United States, with nearly 95 percent of all cottonseed sales in the high-value cotton-growing regions of the MidSouth – Arkansas, Louisiana, Mississippi, Missouri, and Tennessee and the Southeast – Alabama, Florida, Georgia, North Carolina, South Carolina, and Virginia. Monsanto is the dominant provider of biotechnology traits for cottonseed. Monsanto’s successful commercial traits are in significant part the fruit of its long relationship with DPL, combining Monsanto’s biotechnology innovations with DPL’s large collection of high-quality seeds and the seed company’s knowledgeable cottonseed breeders. In the past few years, DPL began partnering with other biotechnology companies and planned to offer cottonseed with non-Monsanto traits in the near future. The DOJ determined that the proposed merger would have eliminated DPL as a partner independent of Monsanto for these trait developers and that the transaction would have delayed or even prevented competitive products from reaching the market.

By requiring significant divestitures and licensing changes, the DOJ’s proposed settlement attempts to remedy the potential harm of the original transaction.

Andre Barlow

(202) 589-1834

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