Divestitures to Bayer AG and Dow Agrosciences Will Ensure Continued Competition
The Federal Trade Commission today announced a proposed consent agreement with Novartis AG (Novartis) and AstraZeneca PLC (Zeneca) that would allow the two companies to combine their agricultural chemical businesses while remedying the potential anticompetitive effects of the transaction. The combined businesses will be the basis of a new Swiss company called Syngenta AG, which will have estimated sales of approximately $8 billion. Syngenta will be owned by Novartis's and Zeneca's shareholders, and the companies will have no control over Syngenta. Under the FTC order, Novartis would divest its worldwide foliar fungicide business based on the strobilurin chemical class to Bayer AG (Bayer) and Zeneca would divest its worldwide corn herbicide business based on the active ingredient acetochlor to Dow AgroSciences LLC (Dow Agro).
"This agreement addresses competitive issues in the areas of concern: pre-emergent grass herbicides for use on corn and foliar fungicides for use on cereals, peanuts, potatoes, rice, turf and vegetables," said Richard G. Parker, Director of the FTC's Bureau of Competition. "By requiring divestitures in these markets, the Commission will ensure that competition is preserved for farmers who need these products and that Syngenta will not be able to raise prices unilaterally." He thanked the European Commission for its cooperation in investigating the proposed merger.
According to the Commission's complaint, the proposed merger would violate Section 5 of the FTC Act and Section 7 of the Clayton Act by reducing competition in the already highly concentrated markets for corn herbicides for pre-emergent control of grasses and foliar fungicides for use on cereals, peanuts, potatoes, rice, turf and vegetables through the elimination of direct and substantial competition between Zeneca, headquartered in the United Kingdom, and Swiss-based Novartis. The FTC also contends that the merger would significantly increase the level of concentration in the relevant markets, increase the barriers to entry in these markets, allow the merged firm to unilaterally raise prices and increase the likelihood of coordinated interaction between the remaining competitors. According to the complaint, entry by another competitor into these markets is unlikely to counteract the anticompetitive concerns raised by the proposed transaction.
Novartis is the leading developer, producer, manufacturer and seller of corn herbicides for pre-emergent control of grasses in the United States, with about 50 percent of the market, followed by Zeneca with about 15 percent. The proposed merger would significantly increase concentration within the U.S. market, the FTC contends.
Similarly, Novartis and Zeneca are leading sellers of foliar fungicides for use on cereals, peanuts, potatoes, rice, turf and vegetables in the United States, and account for about 40 percent of all fungicide sales. Typically for a given plant, there are only two or three significant fungicide sellers, with sales by the top two companies ranging from 70 to 90 percent. Currently, Zeneca, Novartis, and BASF Corporation are the only companies registered to sell strobilurin fungicides (a particular type of foliar fungicide) in the United States. The FTC contends that no other company is likely to introduce a new strobilurin fungicide to the U.S. market in the next three to four years.
The proposed consent order, which is subject to public comment, would remedy the potential anticompetitive effects of the merger by requiring Zeneca to divest its worldwide acetochlor corn herbicide business to Dow Agro, a wholly-owned subsidiary of Dow Chemical Company. This divestiture would include the transfer of intellectual property, know-how, registrations, trademarks, rights to technical assistance and the right under existing joint venture contracts with Monsanto that are needed to manufacture and sell such corn herbicides. Zeneca would also be required to provide Dow Agro with certain services and inputs on a transitional basis.
Also under the terms of the order, Novartis would be required to divest its worldwide strobilurin fungicide business to Bayer. Specifically, it will divest its trifloxystrobin production facilities in Muttenz, Switzerland, along with related intellectual property, know-how, registrations, and the trademarks needed to manufacture and sell strobilurin pesticides. As with Zeneca, Novartis would be required to provide Bayer, which is organized and based in Germany, with certain services and inputs on a transitional basis.
The order specifies that Zeneca and Novartis would be required to divest all assets no later than 10 business days after Syngenta is formed or 10 days after gaining necessary foreign government approvals for the divestitures. However, the divestitures must be made within six months from the date the FTC places the order on the public record. The Commission has also issued an Order to Maintain Assets that would require Zeneca, Novartis and Syngenta to maintain the assets to be sold as ongoing businesses pending their divestiture.
To ensure that the assets are divested expeditiously, the order stipulates that the Commission would maintain the right to appoint a trustee to oversee the transactions. This trustee would report to the FTC every 60 days for six months from the date the order is signed, and annually until the initial term of the supply agreements has expired, regarding the companies' compliance with its terms. Zeneca and Novartis themselves would be required to report to the Commission about their compliance within 60 days after the proposed order becomes final and for every 90 days thereafter until all assets have been successfully divested to Bayer and Dow Agro.
If the companies fail to divest the required assets in the time allotted, the Commission would be entitled to appoint a trustee to complete the sales in accordance with the terms of the order. Noncompliance could also result in the assessment of civil penalties against the companies.
The Commission vote to accept the proposed consent agreement and Order to Maintain Assets was 5-0. An announcement regarding the proposed consent agreement will be published in the Federal Register shortly, and will be subject to public comment for 30 days, until December 1, 2000, after which the Commission will decide whether to make it final. Comments should be addressed to the FTC, Office of the Secretary, 600 Pennsylvania Avenue, N.W., Washington, D.C. 20580.
NOTE: A consent agreement is for settlement purposes only and does not constitute an admission of a law violation. When the Commission issues a consent order on a final basis, it carries the force of law with respect to future actions. Each violation of such an order may result in a civil penalty of $11,000.
Copies of the complaint, proposed consent agreement and an analysis of the proposed consent order to aid public comment, are available from the FTC's Web site at http://www.ftc.gov and also from the FTC's Consumer Response Center, Room 130, 600 Pennsylvania Avenue, N.W., Washington, D.C. 20580; 877-FTC-HELP (877-382-4357); TDD for the hearing impaired 1-866-653-4261. To find out the latest news as it is announced, call the FTC NewsPhone recording at 202-326-2710.
Mitchell J. Katz,
Office of Public Affairs
Morris A. Bloom,
Bureau of Competition
Frederick J. Horne,
Bureau of Competition
(FTC File No. 001-0082)