Why Would the EU Put the Kibosh on Bayer's Acquisition of Monsanto?

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Last year, Bayer announced its intention to purchase (in cash!) Monsanto. This posed something of an existential dilemma for anti-GMO movements like March Against Monsanto and the Non-GMO Project, which would have to pick a new bogeyman in their war against biotechnology. Making matters worse, Bayer is consistently ranked as one of the world's most reputable companies.

But the acquisition may not go through. Multiple media outlets have reported that European Union regulators are skeptical of the merger. Why?

One's initial impulse might be that the EU simply doesn't like GMOs (which is true), so it will make an example of Monsanto by blocking its acquisition by Bayer. But that doesn't appear to be the case. According to the Wall Street Journal, the EU approved mergers between DuPont and Dow Chemical as well as Syngenta and ChemChina, albeit after various concessions were made. (Both DuPont and Syngenta sell GMOs.)

Neither does it appear as if the EU is trying to undermine the success of an American business. DuPont and Dow are both headquartered in the U.S.

On the contrary, EU regulators seem to be legitimately concerned about the impact the merger may have on competition. The WSJ reports that the "EU said the two companies have a high market share in breeding or licensing—and in some cases both—vegetable, canola and cotton seeds."

Along similar lines, the Financial Times wrote, "European antitrust authorities worry the deal would 'reduce competition in a number of different markets resulting in higher prices, lower quality, less choice and less innovation.'"

A Legitimate Role for Government

Though my personal bias is often against government intervention, there is a legitimate role for regulators in the case of mergers of large companies. The reason isn't because corporations are evil or because our food supply is in danger -- as the conspiracy theorists warn -- but because one of the main functions of a democratic government in a capitalist society is to maintain a competitive environment. A lack of competition really does negatively impact prices and quality.

For proof, look at the American airline industry. Everybody hates it. It's so bad that politicians are discussing a new passenger bill of rights. Perhaps we wouldn't need one if there was more competition.

In April, after United beat up one of its passengers, The Economist argued that U.S. regulators allowed too many airline mergers. The EU happily blocks them, and this policy at least partially explains why flying on a European airline is a much more pleasant experience than flying on an American one. The article says:

This happy combination of low fares and reasonable service has a simple explanation: competition. American policymakers have presided over a wave of mergers in the past few years. The biggest four carriers in America between them now control 80% of the market, compared with just 48% a decade ago.

Mergers may be a great business decision, but they may not be great for society.

Should They or Shouldn't They?

Still, it is difficult to escape the suspicion that Monsanto's undeserved notoriety and Europe's antipathy toward GMOs are influencing EU regulators. The DuPont-Dow deal was worth $122 billion, but the Bayer-Monsanto deal is worth merely $57 billion. And if European lawmakers ban the cultivation of GMOs, then it's not clear what sort of competition they're worried about preserving.

If the EU is not distracted by politics and anti-GMO activists -- and if it is able to focus solely on the economic pros and cons of a merger -- it is engaging in appropriate regulatory oversight. But that's a big "if."