On April 5, 2017, the EC approved China National Chemical Corporation’s (“ChemChina”) proposed acquisition of Syngenta AG (“Syngenta). The approval is conditional on the divestiture of significant parts of ChemChina’s European pesticide and plant growth regulator business.
Syngenta is the leading pesticide supplier worldwide. ChemChina is currently active in pesticide markets in Europe through Adama, its wholly-owned Israel-based subsidiary. Unlike Syngenta, which produces pesticides based on active ingredients it has developed itself, Adama only produces generic pesticides based on active ingredients developed by third parties for which the patent has expired. Adama is the world’s largest producer of such generic pesticides.
The EC had concerns that the transaction as notified would have reduced competition in a number of existing markets for pesticides. Furthermore, it had concerns that the transaction would reduce competition for plant growth regulators. The EC’s investigation focused on competition for existing pesticides, since ChemChina does not compete with Syngenta for the development of new and innovative pesticides.
The settlement addresses the EC’s competition concerns in full. The companies will divest: (i) a significant part of Adama’s existing pesticide business, including fungicides for cereals, fruits and oilseed rape, herbicides for cereals, corn, sunflower and vegetables, insecticides for cereals, corn, fruits, oilseed rape, and vegetables and its seed treatment products for cereals and sugar beet; (ii) some of Syngenta’s pesticides, notably fungicides for vegetables and herbicides for cereals, vegetables and sunflower; (iii) 29 of Adama’s generic pesticides under development and access to third parties to studies and field trial results for these products; (iv) a significant part of Adama’s plant growth regulator business for cereals; and (v) all relevant intangible assets underpinning the divested pesticide and plant growth regulator products. The companies also agreed to make available relevant personnel to help with the transfer of assets.
The EC concluded that the divestiture package will ensure that effective competition is preserved in pesticide and plant growth regulator markets after the merger as the companies are divesting in all product markets that raised competitive concerns. Unlike the U.S. FTC, the EC required the sale of Adama’s products under development to ensure the viability and competitiveness of the divested business. The EC believes that the buyer of the divested assets will be able to compete with the parties to the benefit of European farmers and consumers.
On the face of it, the EC’s enforcement action appeared to be more aggressive in obtaining a stronger enforcement order than the FTC. In terms of similarities, both the FTC and EC focused on competitive overlaps between branded and generic products. One explanation of the difference in the FTC’s divestiture remedy package compared to the EC’s remedy package is that the facts may have been different in Europe as compared to the United States. However, the EC, unlike the FTC, had an additional focus on pipeline products. The EC’s remedy fully addresses the competitive concerns raised by the deal and is designed in a way that should provide effective competition in European pesticide markets. As is typical for the EC, the EC did not require an upfront buyer whereas the FTC required one.