Exclusive: U.S. states join Dow-DuPont merger probe - sources

November 7, 2016 5:04 PM EST

A sign is seen at an entrance to a Dow Chemical Co plant in Plaquemine, Louisiana December 12, 2015 REUTERS/Jonathan Bachman


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By Diane Bartz

WASHINGTON (Reuters) - U.S. state attorneys general have joined a federal antitrust probe of the planned merger between DuPont (NYSE: DD) and Dow Chemical Co (NYSE: DOW), according to three people familiar with the matter, heightening risks to a deal that could help reshape the global farm industry.

A separate group of state attorneys general are expected to join a probe of Bayer AG's $66 billion plan to buy Monsanto Co (NYSE: MON), one of the sources said.

The involvement of the state attorneys general increases scrutiny of the mega deals and will complicate what are already expected to be tough and lengthy reviews by U.S. antitrust enforcers.

About seven states, including California, have joined the probe of Dow's planned merger with DuPont, according to two people familiar with the matter. It was not yet clear how many states would join the Bayer-Monsanto merger investigation, one source said.

The states are concerned that the companies may raise pesticide and herbicide prices for farmers following a merger, and have less incentive to compete to introduce better and cheaper products, two of the sources said.

The sources asked not to be named because they were not authorized to speak with the media

DuPont and Dow said in separate statements they expected to win approval for their deal. "In the U.S., we are working constructively with federal and state regulatory authorities, elected officials and all agriculture stakeholders to show the pro-competitive benefits of the merger," the companies said.

Bayer said in a statement it looked forward to "working diligently with regulators to ensure a successful close." Monsanto did not respond to a request for comment.

While it is up to the Justice Department to decide whether to file a lawsuit to stop a merger, states provide information on how the mergers would affect their jurisdictions and conduct joint calls to gather data from the companies, as well as critics and supporters of the deals.

The Justice Department, with help from states, sued in July to stop two of the year's most controversial deals - Aetna Inc's (NYSE: AET) plan to buy Humana Inc (NYSE: HUM) and Anthem Inc's (NYSE: ANTM) bid for Cigna Corp (NYSE: CI). Eleven states and the District of Columbia joined the federal government in the Anthem lawsuit while eight states and Washington, DC, joined the Aetna lawsuit.

Chemical companies DuPont and Dow agreed in December to create a company worth $130 billion, with a plan to split into three companies with one specializing in agriculture, another in materials and a third in specialty products.

The Dow deal with DuPont and Bayer's plan to buy Monsanto are two of four mergers in the business of selling farmers seeds, fertilizer, pesticides and herbicides. The others are ChemChina's plan to buy Syngenta AG and Potash Corp's (NYSE: POT) plan to buy Agrium Inc (NYSE: AGU).

A FOCUS ON ALTACOR, INTREPID

The state probe of Dow's planned merger with DuPont is focused on the companies' overlap in pesticides used on high-value crops like almonds, pistachios, grapes and apples, two of the sources said.

The insecticides in question are DuPont's Altacor and Dow's Intrepid, which are chemically different but which both fight insects that can kill or mar almonds, apples and other nuts and fruit.

If allowed to combine, Dow and DuPont would also have 41 percent of the market for U.S. corn seeds and traits and 38 percent of the U.S. soybean seeds and traits market, according to a Morgan Stanley research report in February.

The Bayer-Monsanto review will likely focus on the companies' overlap in cotton seed, a source said.

The state attorneys general will also look at traits since Bayer licenses genetic traits that make seeds resistant to Liberty, a popular herbicide, while Monsanto licenses traits that make seeds resistant to Roundup, another popular herbicide.

(Reporting by Diane Bartz; Editing by Soyoung Kim and Andrew Hay)



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