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Business deals

Agrochemical consolidation creating 3-pronged market

A Bayer group research facility in Germany.

LONDON/CHICAGO -- Bayer's agreement Wednesday to acquire Monsanto marks the agrochemical and seed industry's latest step toward a tripolar market, with titans in the U.S., Europe and now China battling it out over a fast-growing market.

The industry had been dominated by six major players for well over a decade, since early 2000. Over that time, companies have honed their ability to develop such yield-improving products as genetically modified seeds that are more resistant to pest insects and can thrive in poor soil.

But concerns about food safety and the environment have prompted tougher regulation of late. Though investment has increased, research has become less efficient, said Liam Condon, head of Bayer CropScience.

And with the global population set to rise by an estimated 3 billion by 2050, lifting food demand accordingly, agrochemicals are sure to remain a growth market. Companies need to scale up to bolster research and development investment and ensure they expand faster than their peers.

With the Bayer-Monsanto deal, the industry will consist of three big players, each with annual sales exceeding $10 billion: Germany's Bayer group, the U.S.-based union of Dow Chemical and DuPont, and China National Chemical, which is taking over Syngenta.

Bayer CEO Werner Baumann called Bayer's agrochemical operations and Monsanto's seed business and biotechnology an ideal combination. Monsanto is also a leader in consulting services for farmers using big data.

The two companies complement each other not only technologically, but geographically as well, with Monsanto boasting a solid customer base in the U.S., an agricultural powerhouse. The deal is seen creating $1.5 billion in synergies. With sales totaling $26.6 billion, the combined company would likely top the market by a wide margin.

Meanwhile, Dow and DuPont, which agreed in December to merge, have a firm foundation in the U.S., as well as global networks cultivated through their chemical businesses. They also enjoy an enviable reputation for R&D, thanks to a wealth of talent attracted by the prospect of working for such prestigious companies.

The two companies will spin off their combined agricultural businesses after the merger, allowing for faster allocation of resources, Dow CEO Andrew Liveris said.

State-run ChemChina is challenging the U.S.-European lock on the industry with its acquisition of Switzerland's Syngenta. It hopes to capitalize on the growth potential of China, which has the world's largest population.

ChemChina aims to leverage Syngenta's biotech capabilities to widen its foothold in emerging countries, including African nations whose growing populations make them promising markets for seeds and crop chemicals. The company aims to penetrate further into Africa by developing seeds tailored to local soil and climate conditions.

The industry's consolidation is making some customers uneasy about the concentration of the market into just a few hands. Antitrust authorities may not look kindly on these megadeals. A review by the European Commission could hold up the Dow-DuPont union. And the likely dominance of the combination of Bayer and Monsanto may be a concern for regulators, which could force them to sell off some businesses before the deal can go through.

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