Fair Play: Could Bayer-Monsanto Elevate National Security in Merger Reviews?


FAIR PLAY

Antitrust deciphered.

Bayer

Type #mergerfromhell into your search box on Twitter and examine the results. Environmentalists, farmers, food safety advocates are all engaged in active grassroots and social media campaigns to stop the $63.5 billion merger between Bayer AG, a German company, and Monsanto Co., a U.S. company.

It’s a massively unpopular deal, more so than the other two major agribusiness deals that preceded it, DowDupont Inc. and Syngenta AG-ChemChina.

Objections to the Bayer-Monsanto deal run the gamut. Natural food enthusiasts don’t like it because Monsanto touts genetically modified food. Environmentalists have targeted Monsanto for years over its pesticides.

But now some officials are wondering whether a merged Bayer-Monsanto would endanger national security by making it a sole supplier of certain seeds and herbicides. That’s a new twist on an old debate about the effects of consolidation in agriculture.

Farmers say Bayer-Monsanto would force them to buy its seeds and other crop protections because those products work best together. Prices would go up and our food would get more expensive, they say.

When it comes to food, it may not be a stretch to suggest that a dominant food supplier could become a threat to a basic human need. It becomes more than a competition problem.

There’s also a question of whether competition regulators in other countries, especially ones that aren’t friends to the U.S., can mandate that a U.S. company hand over certain technologies. Russia’s competition regulator has made just such a demand, seeking the transfer of Bayer-Monsanto technologies to its state-run economics school, as a condition for approving Bayer-Monsanto. That’s never happened before. Presumably Bayer and Monsanto executives are trying to negotiate a relatively harmless way to share some information. Russia’s regulator simply says talks are proceeding.

Sen. Jon Tester (D-Mont.) broached U.S. food production as a national security issue at a recent Senate Banking Committee hearing. “Would you agree that food security and national security are connected,” he asked. The witnesses, all officials who review foreign transactions on security grounds, agreed.

Bayer-Monsanto has been reviewed by the Committee on Foreign Investment in the United States (CFIUS), the multi-agency panel that vets foreign transactions that raise security concerns. CFIUS doesn’t make its conclusions public, but Bayer announced in November that CFIUS had cleared it.

Tester, a third generation farmer, has long been an opponent of Bayer-Monsanto. He believes the merged behemoth – it would be the largest integrated seed and pesticide company – would squelch small family farms.

Monsanto executives argue that the merger with Bayer is actually good for farmers because it combines two complementary businesses that invest billions in R&D. Working separately, it could take 20 years for new herbicides to come on the market, Monsanto Chief Technology Officer Robb Fraley wrote in an op-ed last year. Combining the Monsanto’s seed and biotech innovations with Bayer’s crop protection tools could cut that time in half.

There’s no doubt that regulators are weighing those positives with the possible negatives about Bayer-Monsanto. Still, Tester was frustrated by the lack of transparency about how CFIUS decided the deal wouldn’t threaten national security. “I would really love to know the thought process that went into that. Because, from a national security standpoint, I think it makes us less secure,” he said. “It gives control of our food to a select few people.”

Tester’s argument raises monopolization, a typical antitrust issue, as a security issue. That’s a novel idea, but it could take hold among policymakers.

Consider the security problems raised foreign investment. Syngenta-ChemChina, one of the “Big Three” agriculture deals of the last year, involved a Chinese chemical company’s acquisition of a Swiss firm. Officials in the U.S., Europe, and Australia are raising national security alarms because of China’s aggressive investment around the globe. They say their countries’ competitive advantages are at risk.

CFIUS cleared Syngenta-ChemChina in August 2016, but not without protest from several lawmakers and questions from the U.S.-China Economic and Security Review Commission about the Chinese Communist party’s use of state-owned companies to advance its own national security objectives.

Given the heightened concern about Chinese investment now, it’s not clear Syngenta-ChemChina would clear CFIUS today. If Bayer were a Chinese company, would CFIUS be as willing to OK its purchase of Monsanto?

The most basic antitrust review of Bayer-Monsanto asks whether it would dominate U.S. farming and unfairly disadvantage rivals. Some farmers think so. Just last week, a North Dakota farm sued Monsanto alleging that its pesticide dicamba creates a monopoly that poses risk to farmers.

If Bayer-Monsanto further herds farmers into only using its products, what happens to innovation? That’s a question raised by President Reagan’s Federal Trade Commission Chairman James Miller in a December op-ed making the case against Bayer-Monsanto.

“Agriculture is the heart of our heartland’s economy,” he wrote. “A decline in agricultural innovation will sap our greatest strength and hurt us worst of all.”

It’s hard to tell if he’s talking about national security or the U.S. competitive advantage. With the hype over Bayer-Monsanto, those two concepts are becoming closely linked.

What’s Happening

On Monday, oral argument is scheduled in U.S. Chamber of Commerce v. Seattle, the case asking whether ride-hailing drivers can join unions, before the U.S. Court of Appeals for the Ninth Circuit. The Justice Department and the FTC have weighed in saying Seattle’s ordinance allowing unionization would violate the federal law against price fixing.

On Thursday, the FTC will hold a closed-door meeting. Deals on tap could include Tronox Ltd.’s bid to buy fellow paintmaker Cristal, the pending gas and oil merger between Linde AG and Praxair Inc., and Fresenius Medical’s bid to buy rival dialysis firm NxStage. 

Quote of the Week

“Unfortunately, parties often wait to make their strongest advocacy pitches and evidentiary submissions too late in the process. They wave their hand like they’re using a Jedi mind trick hoping to convince us there’s nothing to see, even though significant areas of concern are obvious: ‘These are not the droids you’re looking for. Move along, move along.’”

--Deputy Assistant Attorney General Barry Nigro, speaking about merger reviews in remarks at the Annual Antitrust Law Leaders Forum in Miami.

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