European regulator approves $130-bn Dow Chemical-DuPont merger with conditions

The European regulator yesterday approved $130-billion Dow Chemical-DuPont  merger after both companies agreed to divest several assets including most of their entire research & development operations.

The mega merger is yet to be approved by regulators in the US, India, China, Brazil and other countries.

In December 2015, both Du Pont and Dow agreed to a $130-billion merger in order to split into three separate publicly traded companies focused on agriculture, specialty chemicals and material science.

The market value of the two companies has increased from $130 billion to $145 billion since the deal was announced.

The European Commission (EC) concluded that both Dow and DuPont produce a wide range of chemicals and both companies complement rather than compete with each other. But their activities overlap significantly in other areas, as both sell pesticides products used by farmers to control pests that can harm their crops.

''Effective competition in this sector allows farmers to choose from a range of products at affordable prices. It also pushes companies to continue developing new products that meet the high regulatory standards in Europe,'' the EC said.

The EC said that the merger would have significantly reduced competition for pesticides products, and would have led to higher prices and lesser choice.

DuPont agreed to sell its pesticides business in the areas the EC was concerned about, which accounts for about half of the sales of DuPont's pesticide business.

The sale includes all the assets that DuPont needs to make and sell these products and also includes a number of new products that it is developing, and its worldwide research and development organisation for pesticides.

Since the EC also said that Dow and DuPont are also significant competitors for two types of petrochemical products and hold a large share of both markets, Dow agreed to sell its factories and contracts for these products.

Both companies have agreed to divest almost all of DuPont's global R&D organisation so that the divestment 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.

Dow and DuPont are in negotiations to find a buyer for the divestments, which could delay completion of the merger, say analysts.

EC Commissioner Margrethe Vestager said, ''Our job, as a competition authority, is to make sure a merger doesn't deny Europeans the benefits of competition. That is why we always look at what a merger would change – not just today but also tomorrow. We need to ensure that a merger does not lead to higher prices for existing products or reduce choice. But it is just as important to ensure that it does not reduce innovation for new and better products.''

The Indian competition regulator has also said that the proposed merger is likely to have an "appreciable adverse impact on competition," especially in agrochemicals, seeds and material science.

(See: European Commission statement on the Dow Chemical-DuPont merger conditions)