A potentially large agribusiness merger in the United States has been blocked this week as the Obama administration stepped in to prevent Deere & Company (DE) from buying one of Monsanto’s operations.
Deere & Co is engaged in equipment operations and financial services. The Company operates through three business segments: agriculture and turf, construction and forestry, and financial services. The Company’s agriculture and turf segment primarily manufactures and distributes a full line of agriculture and turf equipment and related service parts. Meanwhile, Monsanto Company (MON), provides agricultural products such as seeds, biotechnology trait products, and herbicides for farmers. The Company operates through two segments: Seeds and Genomics, and Agricultural Productivity. One of Monsanto’s subsidiaries produces precision agriculture tools and this is the operation that Deere is eager to merge with. From a recent news release on the John Deere website, Deere mentions that “Competition in precision agriculture is strong and growing in all of these channels as companies around the world continue developing new technologies…. When the transaction is finalized, Deere will preserve Precision Planting’s independence in order to ensure innovation and speed-to-market and will invest in additional innovation efforts at Precision Planting to benefit customers.”
But on Wednesday, the Justice Department filed a lawsuit in an attempt to halt the deal in its tracks. This deal goes all the way back to November of last year when Deere announced that it wants to buy Monsanto’s precision planting equipment line. What this line essentially does is help farmers plant their seeds at twice the speed of the conventional planting system. Both companies were on board with the merger suggesting that it will benefit farmers by accelerating development of solutions that will increase crop yield and productivity. However, the Department of Justice believes otherwise. It argues that the deal will only suppress competition by giving Deere a monopoly of planting equipment in the market. This reasoning is understandable since Deere and Monsanto’s precision line together account for roughly 86% of all equipment in the farming sector.
“If this deal were allowed to proceed, Deere would dominate the market for high-speed precision planting systems and be able to raise prices and slow innovation at the expense of American farmers who rely on these systems,” Acting Assistant Attorney General Renata Hesse of the Antitrust Division said in a statement.
Shares of Deere (DE) fell on Wednesday following the news about the lawsuit, and it declined again on Thursday. Deere & Co. (DE) has already said that it plans to contest the legal action by the U.S. Department of Justice which seeks to block the company’s acquisition of Precision Planting from Monsanto (MON). In a world of declining commodity prices, crops and other soft commodities are making it more difficult than before for farmers to make a profit. This in turn negatively affects the entire supply chain which is why there has been a lot of talk about agricultural mergers lately. Another acquisition that was announced was by German chemical and pharmaceutical company Bayer, as it wants to buy not just the precision planting part of Monsanto, but the entire company, which is valued at roughly $46 billion. Another large agribusiness merger is the $69 billion deal with Dow Chemical and DuPont. And earlier this week on Tuesday, two large Canadian fertilizer companies, Potash Corp and Agrium, confirmed that they are also weighing the costs and benefits of merging together in yet another example of consolidation in the global agricultural sector. The question now is what kind of regulatory roadblocks can these agriculture businesses expect to face in the future.
This author does not own any stocks mentioned above as of writing this article and does not plan to own for the next 72 hours.