SAO PAULO (Reuters) - Seed giant Monsanto Co.’s unwanted takeover bid with Switzerland’s Syngenta AG would face strong resistance in Brazil should it go forward, farmers and lawyers said, a hurdle that could delay or force major concessions to the $45 billion deal.
Much of the public focus on the move has revolved around potential antitrust questions in the United States and the European Union, but challenges could also likely arise from emerging agricultural powers such as Brazil and China.
In particular Brazil, the second-largest market for Monsanto and Syngenta, is crucial to the future of both companies. As one of the few places in the world with land available to expand farming, Brazil is likely to surpass the United States as the world’s top soybean producer in the coming years, while its tropical climate makes it an enormous pesticide consumer.
Brazil’s regulator, Cade, could spend up to a year, the maximum time allowed, analyzing any potential deal, said Marcio de Carvalho Silveira Bueno, an antitrust lawyer at Sao Paulo-based TozziniFreire Advogados.
“Cade has seen big cases, but this would be one of the biggest without a doubt,” he said.
The Brazil office of Syngenta, which is already showing signs of resisting the takeover, called the idea of resolving antitrust issues by selling the seed business and overlapping chemistry assets “far too simplistic” and said “divesting Syngenta’s seeds business would dismantle our integrated strategy in emerging markets such as Brazil.”
Monsanto spokeswoman Sara Miller said Monsanto expects “a thorough global regulatory process” but remains confident in its ability “to obtain all necessary global regulatory approvals.” Farmers are the company’s No. 1 priority, she said in an e-mail.
”It’s impossible to know how far reaching the restrictions would be, but some kind of divestment or other kind of structural remedy will be solicited,” said Antonio Garbelini Junior, partner and antitrust expert at Sao Paulo law firm Siqueira Castro. He noted that all parties affected by the merger would be heard by the regulator.
Brazilian farmers are already opposed to the deal, said Ricardo Tomczyk, president of Brazil’s main farmers’ lobby Aprosoja in top growing state Mato Grosso. He said the group would closely monitor Cade’s evaluation of any merger proposal and didn’t rule out additional legal measures.
“It would distort the free market and hurt the sector all around ... we are quite concerned,” said Tomczyk, a lawyer who has also represented farmers in legal battles against Monsanto over royalty fees.
He said the farmers’ main concerns are with genetically modified seeds, where Monsanto leads and Syngenta is developing technology in Brazil, and agricultural chemicals, where Syngenta is the leader and Monsanto has some production.
Monsanto has committed to divesting all of Syngenta’s seeds and traits business, as well as some overlapping chemistry assets.
Ratcheting up the pressure to find a deal, which first came to light in late April, is German chemicals group BASF’s bid for Syngenta. BASF has already lined up a loan package from large multinational banks, people familiar with the matter said. [ID:nWEB00OQ8]
Independent Brazilian lawyers noted that in recent years Cade has approved some large tie-ups affecting agriculture, one of few bright spots in Brazil’s stalled economy, but with restrictions.
It approved the takeover of the country’s main railway operator, America Latina Logistica SA, by Cosan Logistica SA in February, addressing sugar and grain producer concerns by requiring third party access to Cosan’s two dry bulk terminals at Santos port.
Cade threatened to derail a 2009 merger between Perdigao and Sadia to create processed foods giant Brasil Foods, now known as BRF SA, but ultimately endorsed a plan requiring the latter to sell 80 percent of Perdigao’s production capacity and halve the sale of some of its products.
Vinícius de Carvalho, the president of Cade, declined to comment on whether a Monsanto-Syngenta deal would require antitrust remedies.
Syngenta said in a statement to Reuters that combining the two companies would create “an agricultural monster accounting for more than 50 percent of farmers’ seed and crop protection input costs in many countries, including Brazil.”
Brazil is particularly known for its regulatory scrutiny and said a combined entity would dominate in corn and soybeans, Syngenta added.
“One would expect Cade to scrutinize a proposed combination very, very closely because the combined firm would have tremendous market power,” Jon Leibowitz, an attorney for Syngenta at Davis Polk and former Chairman of the Federal Trade Commission in Washington, said in an interview.
The two firms would have high combined shares in glyphosate and in two competing herbicides, he added.
Sources familiar with Monsanto said the company’s legal focus so far has been on potential antitrust hurdles in the United States and the EU, but that it has legal teams in Brazil, China and elsewhere studying the merger.
One source said Monsanto doesn’t have enough information, especially from Syngenta, to do much of an evaluation in these markets right now.
Additional reporting by P.J. Huffstutter in Chicago and Cesar Bianconi and Leonardo Goy in Brasilia; Editing by Alan Crosby