Syngenta is the leading pesticide supplier worldwide. ChemChina is currently active in pesticide markets in Europe through Adama, its wholly-owned Israel-based subsidiary.  Unlike Syngenta, which produces pesticides based on active ingredients it has developed itself, Adama only produces generic pesticides based on active ingredients developed by third parties for which the patent has expired.  Adama is the world’s largest producer of such generic pesticides.

The EC had concerns that the transaction as notified would have reduced competition in a number of existing markets for pesticides.  Furthermore, it had concerns that the transaction would reduce competition for plant growth regulators.  The EC’s investigation focused on competition for existing pesticides, since ChemChina does not compete with Syngenta for the development of new and innovative pesticides.

The settlement addresses the EC’s competition concerns in full. The companies will divest: (i) a significant part of Adama’s existing pesticide business, including fungicides for cereals, fruits and oilseed rape, herbicides for cereals, corn, sunflower and vegetables, insecticides for cereals, corn, fruits, oilseed rape, and vegetables and its seed treatment products for cereals and sugar beet; (ii) some of Syngenta’s pesticides, notably fungicides for vegetables and herbicides for cereals, vegetables and sunflower; (iii) 29 of Adama’s generic pesticides under development and access to third parties to studies and field trial results for these products; (iv) a significant part of Adama’s plant growth regulator business for cereals; and (v) all relevant intangible assets underpinning the divested pesticide and plant growth regulator products.  The companies also agreed to make available relevant personnel to help with the transfer of assets.

The EC concluded that the divestiture package will ensure that effective competition is preserved in pesticide and plant growth regulator markets after the merger as the companies are divesting in all product markets that raised competitive concerns.  Unlike the U.S. FTC, the EC required the sale of Adama’s products under development to ensure the viability and competitiveness of the divested business.  The EC believes that the buyer of the divested assets will be able to compete with the parties to the benefit of European farmers and consumers.

Lesson Learned:

On the face of it, the EC’s enforcement action appeared to be more aggressive in obtaining a stronger enforcement order than the FTC.  In terms of similarities, both the FTC and EC focused on competitive overlaps between branded and generic products. One explanation of the difference in the FTC’s divestiture remedy package compared to the EC’s remedy package is that the facts may have been different in Europe as compared to the United States.  However, the EC, unlike the FTC, had an additional focus on pipeline products.  The EC’s remedy fully addresses the competitive concerns raised by the deal and is designed in a way that should provide effective competition in European pesticide markets.  As is typical for the EC, the EC did not require an upfront buyer whereas the FTC required one.

Andre Barlow
(202) 589-1838
abarlow@dbmlawgroup.com

Syngenta is the leading pesticide supplier worldwide. ChemChina is currently active in pesticide markets in the United States through Adama, its wholly-owned Israel-based subsidiary.  Unlike Syngenta, which produces pesticides based on active ingredients it has developed itself, Adama only produces generic pesticides based on active ingredients developed by third parties for which the patent has expired.  Adama is the world’s largest producer of such generic pesticides.

According to the FTC’s complaint, the merger as originally proposed would have caused competitive harm in the United States in three pesticide lines:

• – the herbicide paraquat, which is used to clear fields prior to the growing season;
• – the insecticide abamectin, which protects primarily citrus and tree nut crops by killing mites, psyllid, and leafminers; and
• – the fungicide chlorothalonil, which is used mainly to protect peanuts and potatoes.

Syngenta owns the branded version of each of the three products at issue whereas ChemChina’s subsidiary ADAMA focuses on generic pesticides and is either the first- or second-largest generic supplier in the United States for each of these products.  The FTC alleged that the merger would eliminate the direct competition between Adama and Syngenta’s branded products.  The FTC was concerned that the acquisition would lead to higher prices even though Adama offers generic versions of Syngenta’s branded products.

To resolve the FTC’s concerns, the proposed settlement requires ChemChina to sell all rights and assets of Adama’s U.S. paraquat, abamectin and chlorothalonil crop protection businesses to California-based agrochemical company AMVAC.

Lesson Learned:

Although the FTC encourages divestitures of an ongoing business over a more limited divestiture package because divestitures of ongoing businesses have a higher success rate than limited divestitures, the FTC allowed a divestiture of a more limited set of assets to an approved upfront buyer.  The FTC will accept a more limited divestiture package only if the merging parties and the buyer can establish that the divestiture will restore and maintain competition.

Andre Barlow
(202) 589-1838
abarlow@dbmlawgroup.com

The hearing will be held in late September.  Senator Grassley said that “The seed and chemical industries are critical to agriculture and the nation’s economy, and Iowans are concerned that this sudden consolidation in the industry could cause rising input costs in an already declining agriculture economy.” The hearing will focus on the transactions currently being reviewed by antitrust regulators, and the current trend in consolidation of the seed and chemical industries.

While details have not been finalized, views from the companies under review by antitrust regulators, consumers and antitrust experts will all be represented at the hearing.  “In most instances when you have less competition, prices go up, and consumers pay more,” he said in an interview.

“In the case of agriculture, farmers are both consumers of [seeds and chemicals], as well as marketers of products.”  Grassley said the September hearing will aim to ensure that antitrust enforcers at the DOJ and the FTC are properly vetting the proposed deals of ChemChina’s acquisition of Syngenta and the Dow/DuPont merger.

The senator urged the FTC, which is reviewing the purchase of Syngenta AG (“Syngenta”) by the China National Chemical Corporation (“ChemChina”), and the DOJ, which is analyzing the merger of The Dow Chemical Company (“Dow”) and E. I. du Pont de Nemours and Company (“DuPont”), to coordinate their reviews.  Senator Grassley wrote that “it is important that these transactions not be reviewed in isolation.”   He urged the DOJ and FTC to collaborate and to gain input from the Department of Agriculture as part of their analysis of the agricultural biotechnology and seed industry and the competitive impact of these deals.

Senator Grassley also expressed concern that “the convergence of these proposed transactions – as well as others currently being discussed – will have an enhanced adverse impact on competition in the industry and raise barriers to entry for smaller companies”; “further concentration in the industry will impact the price and choice of chemicals and seed for farmers, which ultimately will impact choice and costs for consumers”; and “further consolidation will diminish critical research and development initiatives.”