“BAYER-MONSANTO” MERGER EXPOSED SEVERAL ISSUES THAT REQUIRE CHANGES IN CURRENT LAW
On 18 May 2018, Deputy Head of FAS Andrey Tsyganov and Head of FAS Department for Control over Agro-Industrial Complex, Anna Mirochinenko, took part in the session on “Global economic concentration” of St Petersburg International Legal Forum.
Andrey Tsyganov, who moderated the session, pointed out that enforcement of the current law needs modernization. FAS reached this conclusion, having investigated several global cross-border mergers.
Using the example of “Bayer-Monsanto” merger, Head of FAS Department for Control over Agro-Industrial Complex, Anna Mirochinenko highlighted new approaches of the antimonopoly authority to control economic concentration in the context of globalization and economic digitalization.
“The merger became a real test for FAS. It completes formation of the modern structure on the market of seeds and plant protection agents. The merger also predetermines the future structure of the agro-industrial market and the new model for doing business on it. It became a quintessence of the problems and challenges, facing the antimonopoly body in the epoch of globalization and digitalization of the economy”, started her speechAnna Mirochinenko.
“Bayer-Monsanto” merger concerns socially important markets that determine national food security, it has a global nature, (the merger was considered by more than 30 jurisdictions) and is characterized by a radical transformation of the agro-industrial complex (high-tech solutions, patent-protected, IT-technologies, “big data”). Also, “Bayer-Monsanto” merger is aimed at creating closed systems based on digital platforms, integrating under single control markets that are not linked horizontally or vertically.
“As a result of global transformation of the agro-industrial complex, a new market of agro-technologies has been formed. Agro-technologies is a totality of innovative methods, data and knowledge enabling development of new cultivars and hybrids with specified qualities, typically in a package with plant protection agents and digital solutions”, said Head of FAS Department for Control over Agro-Industrial Complex.
The market of agro-technologies is global. Agro-technologies have limited turnover as they are usually have IP protection, particularly, as production secrets, and independent introduction into circulation takes place as exchanging achievements between a close group of market leaders (the Big Four). The market of agro-technologies is inseparably connected with traditional markets: seeds, plant protection agents, because it is there, where the funds spent to develop agro-technologies are monetized. Assessing a company’s position is a comprehensive exercise, taking into consideration a variety of factors (the amount of R&D investments, companies’ shares on related markets, technological completeness, the volume of accumulated data, etc.).
FAS based its assessment of “Bayer-Monsanto” merger on the following factors:
- Trends on the global agro-industrial market can be translated to Russian market in view of its high degree of integration in the world market
- Due to the accelerating transformation of the global agro-industrial market, the short- and mid-term consequences of the merger should be evaluated
- The position of the integrated company on the end-product markets must be assessed due to the companies’ positions on the market of agro-technologies and the trends on the global agro-industrial market
- Devising antimonopoly remedies, the goals of protecting competition and innovative market development should be taken into account
- Due to the global nature of the merger, consultations with foreign competition authorities are necessary.
Anna Mirochinenko reported that following the merger the world market of seeds, plant protection agents and solutions for digital farming will have a sustainable oligopolistic structure, the group of persons of “Bayer-Monsanto” merger will get to the leading positions on the above markets by the sales volume, and obtain control over the key agro-technologies, which will strengthen considerably the market power of the integrated company on the relevant markets. In view of the global market structure, its development trends and absence of effective competition from Russian companies, the group of persons of “Bayer-Monsanto” can gain significant market power in Russian market in the short-run.
“Investigating the case, we exposed a number of threats for competition as a result of completing the merger. It concerns emerging new obstacles and strengthening the existing barriers for entry to the relevant markets, increasing probability for the integrated company to abuse its market power and reinforce incentives for anticompetitive concerted actions and agreements”, commented Head of FAS Department for Control over Agro-Industrial Complex.
The outcome of merger consideration was an order issued by the antimonopoly body that specified mandatory conduct requirements, aimed at creating conditions for development of potential competition from Russian companies on the markets of seeds and digital platforms for precision farming. Such requirements include:
• Transferring molecular means of selection and germoplasm, necessary to create new cultivars and hybrids, to Russian companies
• Non-discriminatory access of Russian software vendors, providers of telematic services and resources (seeds, plant protection agents, fertilizers, etc.) to digital platforms for precision farming
• Non-discriminatory access of Russian companies to the data array collected in Russia, based on which forecasting models are built up under the frame of digital platforms for precision farming.
“For the first time, to implement the order, a trust mechanism was used designed to ensure efficient execution and monitoring of FAS Order. An independent organization – Centre for Technology Transfer formed on the basis of High School of Economics became such authorized body”, statedAnna Mirochinenko.
“Considering “Bayer-Monsanto” merger generated several issues, solving which will require certain changes to the current law. FAS believes that it is necessary to extend the period of consideration for those mergers that can have adverse consequences for competition, enable access of interested executive bodies and the engaged experts to confidential information without consent of the parties to a merger. It is essential to formalize possibility to involve the authorized persons to monitor execution of the order and tighten liability for failure to execute the antimonopoly law”, summed up Anna Mirochinenko.
“We need reasonable periods for considering mergers, a technology to reduce barriers for free transfer of knowledge and technologies between market players, and a clear understanding what network effect is and how it can be estimated in the course of decision-making”, continued Andrey Tsyganov.
Summing up the session, Deputy Head of FAS said: “With our BRICS colleagues we are discussing a mechanism for using similar approaches when considering economic concentration transactions on the global markets. We understand that it will be more convenient and efficient for companies to give us the same volume of information within the same timeframe. In this case, competition authorities from different countries will be able to ensure similar decisions. We aspire to create comfortable conditions for doing business on cross-border and global markets. I’d like to emphasize that cooperation between competition authorities of BRICS countries is simply a must here”.