WASHINGTON, March 27, 2017 - Dow Chemical and DuPont are a big step closer to becoming DowDupont.

The European Commission granted conditional approval today to the “proposed merger of equals,” as the two companies put it in a joint statement. The chemical giants announced the $130 billion deal about 15 months ago, and shareholders approved it last July. U.S. antitrust regulators have not yet given the green light to the merger, which also is under review by authorities in Australia, Brazil, Canada, Chile, China and South Africa.

Because of concerns that the merger would reduce price competition and choices for pesticide products, the EC – the administrative arm of the European Union – is requiring DuPont to sell off part of its pesticide portfolio, as well as “almost the entirety of DuPont's global R&D organization,” the commission said in a press release

“Pesticides are products that matter – to farmers, consumers and the environment,” said Margrethe Vestager, who is in charge of EC competition policy. “Our decision today ensures that the merger between Dow and DuPont does not reduce price competition for existing pesticides or innovation for safer and better products in the future.”

The companies called the approval “a significant step toward closing the merger transaction, with the intention to subsequently spin into three independent publicly traded companies.” Those companies will have three distinct focuses: agriculture, material science, and specialty products.

The merger “is expected to create significant cost synergies of approximately $3 billion with the potential for $1 billion in growth synergies,” Dow and DuPont said. “Longer term, the intended three-way split is expected to unlock even greater value for shareholders and customers and more opportunity for employees as each company will be a leader in attractive segments where global challenges are driving demand for their distinctive offerings.”

Under the conditions required by the EC, the companies said DuPont, based in Wilmington, Delaware, would have to divest its Cereal Broadleaf Herbicides and Chewing Insecticides portfolios, as well as its Crop Protection research and development pipeline and organization, “excluding seed treatment, nematicides, and late-stage R&D programs, which DuPont will continue to develop and bring to market, and excluding personnel needed to support marketed products and R&D programs that will remain with DuPont. DuPont is currently in negotiations to divest the crop protection assets.”

Dow, with headquarters in Midland, Michigan, will have to sell off two manufacturing facilities for acid co-polymers in Spain and in the U.S., “as well as the contract with a third party through which it sources ionomers that it sells to its customers,” the EC said. Dow already announced in February an agreement with SK Global Chemical Co. to divest its global Ethylene Acrylic Acid copolymers and ionomers business.

Specifically, the EC said DuPont “will divest a significant part of (its) existing pesticide business.” That includes:

  • “Globally, DuPont's herbicides for cereals, oilseed rape, sunflower, rice and pasture (thifensulfuron, tribenuron, metsulfuron, chlorsulfuron, triflusulfuron, lenacil, flupyrsulfuron, ethametsulfuron and azimsulfuron) and insecticides for chewing insect and sucking insect control for fruits and vegetables etc. (indoxacarb, cyazypyr and rynaxypyr). They will also divest all tangible and intangible assets underpinning the divested products (including the facilities where the products are manufactured) and relevant personnel.
  • “An exclusive license to DuPont's product for rice cultivation in the European Economic Area to address the more limited concerns relating to fungicides.” 

The commission said it found “specific evidence” that without the conditions,” the merged entity would have lower incentives and a lower ability to innovate than Dow and DuPont separately,” including “specific evidence” that the merged entity would have reduced spending on innovation.

Explaining the need for the conditions, the EC said that “only five companies (BASF, Bayer, Syngenta and the merging parties) are globally active throughout the entire R&D process, from discovery of new active ingredients (molecules producing the desired biological effect), their development, testing and regulatory registration, to the manufacture and sale of final formulated products through national distribution channels. Other competitors have no or more limited R&D capabilities (e.g., as regards geographic focus or product range). After the merger, only three global integrated players would remain to compete with the merged company, in an industry with very high barriers to entry. The number of players active in specific innovation areas would be even lower than at the overall industry level.”

Friends of the Earth Europe criticized the merger in an “open letter” to the EC that also addressed the proposed unions of Syngenta and ChemChina, and Monsanto and Bayer.

“The three resulting companies could control around 70 percent of the world’s agro-chemicals and more than 60 percent of commercial seeds. Through dominant market share and sheer political power, they would unduly influence our agriculture and food system,” FOE Europe said.

The EC could announce approval of ChemChina’s acquisition of Syngenta sometime this week, Reuters reported Thursday.


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