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 Much of the public focus on the move has revolved around potential
antitrust questions in the United States and the European Union, but
challenges could also likely arise from emerging agricultural powers
such as Brazil and China.
In particular Brazil, the second-largest market for Monsanto and
Syngenta, is crucial to the future of both companies. As one of the
few places in the world with land available to expand farming,
Brazil is likely to surpass the United States as the world's top
soybean producer in the coming years, while its tropical climate
makes it an enormous pesticide consumer.
Brazil's regulator, Cade, could spend up to a year, the maximum time
allowed, analyzing any potential deal, said Marcio de Carvalho
Silveira Bueno, an antitrust lawyer at Sao Paulo-based TozziniFreire
Advogados.
"Cade has seen big cases, but this would be one of the biggest
without a doubt," he said.
The Brazil office of Syngenta, which is already showing signs of
resisting the takeover, called the idea of resolving antitrust
issues by selling the seed business and overlapping chemistry assets
"far too simplistic" and said "divesting Syngenta's seeds business
would dismantle our integrated strategy in emerging markets such as
Brazil."
Monsanto spokeswoman Sara Miller said Monsanto expects "a thorough
global regulatory process" but remains confident in its ability "to
obtain all necessary global regulatory approvals." Farmers are the
company's No. 1 priority, she said in an e-mail.
"It’s impossible to know how far reaching the restrictions would be,
but some kind of divestment or other kind of structural remedy will
be solicited,” said Antonio Garbelini Junior, partner and antitrust
expert at Sao Paulo law firm Siqueira Castro. He noted that all
parties affected by the merger would be heard by the regulator.
Brazilian farmers are already opposed to the deal, said Ricardo
Tomczyk, president of Brazil's main farmers' lobby Aprosoja in top
growing state Mato Grosso. He said the group would closely monitor
Cade's evaluation of any merger proposal and didn't rule out
additional legal measures.
"It would distort the free market and hurt the sector all around ...
we are quite concerned," said Tomczyk, a lawyer who has also
represented farmers in legal battles against Monsanto over royalty
fees.
He said the farmers' main concerns are with genetically modified
seeds, where Monsanto leads and Syngenta is developing technology in
Brazil, and agricultural chemicals, where Syngenta is the leader and
Monsanto has some production.
Monsanto has committed to divesting all of Syngenta's seeds and
traits business, as well as some overlapping chemistry assets.
Ratcheting up the pressure to find a deal, which first came to light
in late April, is German chemicals group BASF's bid for Syngenta.
BASF has already lined up a loan package from large multinational
banks, people familiar with the matter said. [ID:nWEB00OQ8]
"AGRICULTURAL MONSTER"
Independent Brazilian lawyers noted that in recent years Cade has
approved some large tie-ups affecting agriculture, one of few bright
spots in Brazil's stalled economy, but with restrictions.
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It approved the takeover of the country's main railway operator,
America Latina Logistica SA, by Cosan Logistica SA in February,
addressing sugar and grain producer concerns by requiring third
party access to Cosan's two dry bulk terminals at Santos port.
Cade threatened to derail a 2009 merger between Perdigao and Sadia
to create processed foods giant Brasil Foods, now known as BRF SA,
but ultimately endorsed a plan requiring the latter to sell 80
percent of Perdigao's production capacity and halve the sale of some
of its products.
Vinícius de Carvalho, the president of Cade, declined to comment on
whether a Monsanto-Syngenta deal would require antitrust remedies.
Syngenta said in a statement to Reuters that combining the two
companies would create "an agricultural monster accounting for more
than 50 percent of farmers' seed and crop protection input costs in
many countries, including Brazil."
Brazil is particularly known for its regulatory scrutiny and said a
combined entity would dominate in corn and soybeans, Syngenta added.
"One would expect Cade to scrutinize a proposed combination very,
very closely because the combined firm would have tremendous market
power," Jon Leibowitz, an attorney for Syngenta at Davis Polk and
former Chairman of the Federal Trade Commission in Washington, said
in an interview.
The two firms would have high combined shares in glyphosate and in
two competing herbicides, he added.
Sources familiar with Monsanto said the company's legal focus so far
has been on potential antitrust hurdles in the United States and the
EU, but that it has legal teams in Brazil, China and elsewhere
studying the merger.
One source said Monsanto doesn't have enough information, especially
from Syngenta, to do much of an evaluation in these markets right
now.
(Additional reporting by P.J. Huffstutter in Chicago and Cesar
Bianconi and Leonardo Goy in Brasilia; Editing by Alan Crosby)
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