Chinese pesticides makers voice concerns over Dow, DuPont merger

July 6 2016. By Xu Yuan.

Pesticides manufacturers in China have expressed concerns to the country’s antitrust authority about the mega-merger of Dow Chemicals and DuPont, MLex has learned.

China’s merger control agency, the Ministry of Commerce, or Mofcom, has collected industry opinions from domestic pesticides companies on the proposed merger of equals that would create a chemical producer with a market value of $130 billion.

Mofcom has been told that the Chinese rivals share concerns over stronger competitive advantages, increased bargaining power and a bigger impact on the overall industry that would be brought about by a merger of the two major players in the Chinese market , it is understood.

Both based in the US, Dow and DuPont are expected to have a market share of approximately 20 percent in the Chinese agrochemicals market after the combination. The transaction would lead to a higher level of concentration in the market where foreign players already prevail, it is said.

The enhanced advantages brought about by the tie-up may further widen the gap between the two companies and their local rivals, the Chinese companies argue.

In the Chinese market, thousands of smaller local companies compete with a very small number of large foreign players, including BASF, Bayer and Syngenta, as well as Dow Chemicals and DuPont. The Chinese players are already far behind their foreign rivals in terms of technology, investment and patent resources.

The merger will probably take that lead to a whole new and higher level because the merged company would be capable of more investment in research and development, further boosting the competitiveness of their products and services. Such a development could leave most of their local rivals unable to compete, with some even being forced out of the market, it is said.

Another potential harm the merger might do to the domestic industry is likely to be manifested in the form of increased costs for local downstream farmers.

With Dow and DuPont’s strength in both seeds and pesticides, the merged entity would be able to gain more power in pricing and have a bigger say in dealing with Chinese farmers, it is said.

A likely scenario such a change would lead to is that farmers would have fewer choices and become more dependent on the company.

In addition, a growing dependency on foreign players could compromise the country’s food security, which is deemed a top priority by the government in a country with a population of over 1.3 billion.

In the meantime, Chinese pesticides makers are also looking at possible opportunities for consolidation to combat the continuing wave of international mergers and acquisitions. However, redundant administrative and regulatory barriers have made it more difficult for Chinese players to carry out mergers than for their foreign counterparts.

Chinese companies are hoping the government will adopt policies to make it easier for the sector to consolidate, according to industry sources.

Dow and DuPont expect the deal, first announced in December, to close in the second half of 2016. Shares of both companies are traded on the New York Stock Exchange.

	Eliot Gao