The issue of innovation is in the spotlight again as Dow and DuPont lobby to win approval from European regulators for their planned merger.
According to a report in the Wall Street Journal, representatives from two companies attended a closed-door meeting with EU regulators on Jan. 9. The meeting also included other players from the industry, including BASF, which is hoping to gobble up a some of the companies’ divested assets.
Chief among the concerns for the EU regulators was innovation, particularly in crop protection.
After forming into one new company called DowDuPont, the plan is that it will then be spun off into three other companies focused separately on materials, speciality chemicals and agrochemicals.
Despite reassurances from Dow and DuPont that the megadeal will allow the newly formed company to more quickly innovate new products and bring them to market, the commission is reportedly worried about how the deal will impact the market for insecticides and herbicides for several crops including beets and cereals.
The companies are responsible for producing a range of high-value products that help boost yield by making crops absorb nutrients better and resist bugs.
“The transaction would lead to the elimination of one of the few companies able to develop and launch new active ingredients," the commission reportedly stated.
Executives from Dow and DuPont admitted that the companies plan to cut research funding by $300 million. But they said that combining DuPont’s arsenal of corn and soybean genetics with Dow’s biotechnology know-how would help them innovate faster.
But the regulators will be looking at the companies’ incentives to license out new technologies and if that would be diminished with less competition in the space.
Several critics of the deal in the U.S. have also expressed worries that it could hamper R&D. Earlier this month, an adviser to President-Elect Donald Trump and potential candidate for agriculture secretary commented: “It’s clear that the motivation behind the mergers is to increase prices and production costs for producers,” he said. “Simply put — this would be bad for every farmer on the planet.”
Lawyers familiar with antitrust reviews have noted that innovation concerns have risen in importance for regulators. These issues can also be harder for companies to resolve than commercial overlaps.
Innovation was also a major worry for EU regulators when they reviewed the planned $35 billion merger between Halliburton Co. and Baker Hughes, which was eventually called off, mainly because of the regulatory hurdles.
The EU commission has until the end of February to make a decision about the Dow-DuPont deal, which it is considering alongside other proposed matchups in the industry including Bayer-Monsanto and ChemChina-Syngenta.
