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European regulators clear Dow Chemical-DuPont merger

March 27, 2017

The European Union on Monday approved the proposed merger of Dow Chemical Co. and DuPont Co., declaring itself satisfied with commitments the companies have made to divest businesses.

Both plan to join in a $62 billion deal and then break apart into three separate, publicly traded companies. Those companies would focus on agriculture, material science, and the production and sale of specialty products.The agricultural operation would be larger than market leaders Monsanto Co. and Syngenta AG.

Dow is based in Midland, Michigan. DuPont has its headquarters in Wilmington, Delaware.

The companies said Wilmington will be the headquarters for the combined agricultural business, but Indianapolis—the home of Dow AgroSciences, which has about 1,500 employees—will be one of its two “global business centers.”

U.S. authorities are still examining the proposed merger.

EU antitrust chief Margrethe Vestager said the bloc's conditional approval ensures that the merger "does not reduce price competition for existing pesticides or innovation for safer and better products in the future."

The 28-nation bloc had raised concerns over the merger in the form originally proposed, but the EU's executive Commission said that "the commitments submitted by Dow and DuPont address these concerns in full."

Dow and DuPont said in February they were willing to divest more businesses to address regulators' concerns.

The companies will sell the DuPont pesticide businesses and "almost the entirety of DuPont's global R&D organization," the Commission said. Part of Dow's petrochemical business also will be sold—manufacturing facilities in Spain for acid copolymers and a contract through which it sources ionomers.

The companies said in a written statement that they "continue to work constructively with regulators in the remaining relevant jurisdictions to obtain clearance for the merger, which they are confident will be achieved."

They said that they believe the outcome of the EU review "is pro-competitive and maintains the strategic logic and value creation potential of the transaction."

The takeover, announced a year ago, is the first to win EU approval out of a trio of mega-deals that would reshape the global agrochemicals industry. The transactions, including Bayer AG’s plan to buy Monsanto Co. and China National Chemical Corp.’s agreement to buy Syngenta AG, would whittle down six industry players to three behemoths in America, Germany and China.

In the United States, the Justice Department is also expected to require divestitures to approve the tie-up, according to a person familiar with the matter. Timing on that decision, or what assets will need to be sold, isn’t yet clear. The EU and the U.S. are in "very close contact," EU Competition Commissioner Margrethe Vestager told reporters in Brussels on Monday. She didn’t know if the U.S. requirements "will completely match" hers.

EU approval was the biggest regulatory hurdle for the deal and the concessions required there “will likely be sufficient to appease U.S. regulators with respect to any concerns in the crop chemicals sectors,” said Jennifer Rie, an analyst for Bloomberg Intelligence in New York. "Some seed assets may need to be sold for approval, including corn and soybeans."

The EU said the combination could have halted work on new chemical products in areas where Dow and DuPont currently compete head-to-head. There was "specific evidence" that the pair would have cut back on the amount they spent on developing products, the European Commission said in an emailed statement. Only Bayer AG, BASF SE and Syngenta match the two firms in discovering, developing and selling agrochemicals.

"We always look at what a merger would change not just today but also tomorrow," Vestager said. "It is just as important to make sure" mergers don’t "reduce innovation for new and better products."

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