The end of the Big Six: Antitrust in M&A


Once a company reaches a certain size, licensing technology, acquiring or merging with another company is one of the quickest and most popular methods of continuing growth.

Each method has its own complications e.g. licensing the technology of a major competitor but the driving force behind most mergers and acquisitions is the same – to gain the right to exploit and use intellectual property.

What happens in a merger?

When mergers take place, ownership documents are reviewed to clarify who owns the intellectual property and agreements between the parties about the rights of using each other’s IP are discussed. Merging with a company brings economic benefits and increases market territory for a business.

If a big company isn’t innovating as rapidly as a disruptive startup, the larger corporation will often choose to acquire that company to exploit its intellectual property and remain competitive in the market rather than try to catch up.

Conversely, for a startup, brand reputation, the abundance of resources and the cashflow of a large corporation may be attractive to smaller companies who want to be acquired.

The different forms of mergers include1:

  • Direct merger – when the target is merged into the acquirer
  • Forward triangular – when the target merges into a shell subsidiary of the acquirer
  • Reverse subsidiary – when a shell subsidiary merges into the target with the target surviving

The Big Six

There have been several notable mergers taking place in the food manufacturing industry in recent years. Kraft and Heinz merged to form Kraft Heinz, China’s Brightfoods acquired Weetabix, and Danone acquired WhiteWave Foods.

As brands in the food industry continue to consolidate into fewer and fewer companies, a similar trend is occurring in the agriculture industry.

The six main players in the agriculture market are known as ‘the Big Six’:

  • Monsanto – American multinational agrochemical and agricultural biotechnology conglomerate known for producing GM seeds
  • Bayer – German multinational life sciences, pharmaceutical and chemical company
  • DuPont – American chemicals company involved in industries including agriculture, biobased industries, advanced materials and electronics
  • Dow – American multinational chemical conglomerate developing products for agriculture, automotive, construction, consumer, electronic materials, packaging and all other industrial markets
  • Syngenta – Swiss agricultural company which produces seeds and agrochemicals
  • BASF – German chemical company and the largest producer in the world with subsidiaries and joint ventures in more than 80 countries

These companies have a combined revenue of more than $65 billion (£52.3 billion) in agrochemical seeds and biotechnology traits and control 75 per cent of all private sector research in seeds and pesticides2. In China, there is also ChemChina, one of the largest state-owned agriculture companies.

The Big Six control 75 per cent of all private sector research in seeds and pesticides
An image of seeds on soil

In late March, Dow and DuPont were given approval by the EU to merge, forming three subsidiaries each specialising in different areas with one focusing on agriculture. ChemChina has offered to acquire Swiss seed producer Syngenta and Bayer has put in a bid to acquire Monsanto.

The issue with mergers in the food production industry is that it can happen with large conglomerates which threatens the establishing of monopolies over large portions of the agriculture market.

These companies own subsidiaries which contribute 70 per cent of their portfolios3. Merging will increase and vastly diversify their portfolios in innovative agricultural and biological technologies. For example, Dow initially specialised in agrochemicals and acquired Mycogen which has a portfolio consisting of agriculture biotechnology. This makes up 87 per cent of the company’s agricultural biotechnology patents.

How does antitrust law impact mergers?

Together, the Big Six own 62 per cent of the world’s patented pesticides and seeds. While the companies claim that the mergers will boost innovation , there are concerns for farmers.

62 per cent of the world’s patented pesticides and seeds are in the hands of just six companies

There are antitrust laws which come into action when mergers on this scale take place. Under US antitrust laws, Section 7 of the Clayton Act sets out rules for acquisition of patents; it prohibits M&As and acquisition of IP rights “if the effect of such an acquisition may be substantially to lessen competition or tend to create a monopoly”4.

In Europe, merging companies need to adhere to the Treaty of the Functioning of the EU and EU Merger Control Regulation. The EU commission must decide whether the acquisition would impede effective competition in a substantial part of the EU5.

With such laws in place, these mergers seem contradictory. Once the mergers happen, there will be three major players in the agriculture market that will govern the future of the world’s food.

They will own most of the world’s intellectual property for agriculture, including seeds, biotechnology or pesticides. The future of our world’s food lies in their hands, leaving little room for competition from anyone else.

An image of corn behind a fence
The future of the world's food leaves little room for competition

How do mergers remain competitive?

Mergers in major food brands have taken place before largely without incident; antitrust law wasn’t a particular issue with the Kraft Heinz merger because Kraft mainly produced packaged meals such as macaroni cheese whereas Heinz manufactured condiments like ketchup – their brands complemented each other.

The goals for Kraft Heinz were to save cost, increase efficiency and provide food products at much lower prices6. If any of the two brands’ products overlapped, they would have had to get rid of the products to counter anti-trust laws. Despite becoming the fifth largest food and beverage company in the world, Kraft Heinz still has global competition after the merger with FMCGs and smaller companies.

Competition issues are more prevalent with agriculture because of the large market share the Big Six have. The new ‘Big Three’, will only have competition with each other. In addition to higher prices, farmers will have less variety to choose from.

Although antitrust laws are in place, the reason most of these mergers will happen is because each company has different products that would complement each other.

If the companies are categorised by industry, the main seed producers are:

  • Monsanto
  • DuPont
  • Syngenta

The main agrochemical producers (pesticide, fungicides, insecticides and fertilisers) are:

  • Bayer
  • Dow
  • ChemChina
  • DuPont
  • Syngenta

A merger between Monsanto and Bayer will have a limited effect on competition because they produce different products which complement each other. This is not the case if DuPont and Dow were to merge, or ChemChina and Syngenta; DuPont and Syngenta would have to stop producing pesticides to prevent antitrust laws coming into effect.

How will the mergers affect farmers?

Even when the mergers happen, the Big Three will still own most of the world’s pesticides and seeds. Regardless of whether the merging companies currently compete, the resulting companies will have limited competition and will leave little room for choice in the agricultural market creating a significant impact on the global food chain.

Economists warn that when four firms control more than 40 per cent of a market share, there is a risk of anti-competitive behaviour which may hinder innovation rather than promote it7.

When four firms control more than 40 per cent of a market share, there is a risk of anti-competitive behaviour

Many antitrust and environmental groups claim the mergers have the potential to force more countries to adopt a single model of farming that impoverishes small farmers.

Merging of the Big Six is also likely to make it expensive for farmers facing the prospect of paying more for seeds and other materials. Small farmers will be disadvantaged because the seeds, chemicals and research will be in the hands of powerful conglomerates able to increase prices without fear of losing market share.

According to the Action Group on Erosion, Technology and Concentration (ETC), the mergers are no longer about seed and pesticide supply but about global control of agricultural input and the world’s food security8.

The centralisation of such vast amounts of infrastructure will provide the companies with Big Data capable of creating unrivalled opportunities for editing gene traits – plus the intellectual property associated with it. The companies’ control of global agricultural inputs is largely unprecedented.

The concern is that even after fulfilling antitrust law requirements, the implications of the Big Six transforming into the Big Three are uncertain.

An image of PatSnap webinar with Ian Harvey