CADE’s General Superintendence concludes opinion about transaction between Dow and Dupont

The General Superintendence of the Administrative Council for Economic Defense – CADE recommended the  approval of the worldwide merger between the companies Dow Chemical and DuPont de Nemours (Merger 08700.005937/2016-61). According to the recommendation, the approval of the transaction should be conditioned to the signature of a Merger Control Agreement (ACC in its acronym in Portuguese), which has already been negotiated by the General Superintendence and the parties. The recommendation has been submitted to the Administrative Tribunal, responsible for the final decision on the case. The opinion was published in the Federal Official Gazette on 5 May 2017.

Dow operates in the market of plastics and performance chemicals production, agricultural sciences and products and services related to energy and hydrocarbons. DuPont operates on a variety of chemical products, polymers, agrochemicals products, seeds, food ingredients and other materials.

The transaction resulted in a horizontal overlap and vertical integration of a large number of products manufactured by both companies. These products have been segmented in four large groups: specialized products (nutrition and health products, such as food fibers, food texturizers, semiconductor encapsulation technology, etc.); material science (performance plastics and chemical products, such as acid copolymers, ionomers, ethylene vinyl acetate, other ethylene derivatives, etc.); pesticides (active ingredients, insecticides, fungicides, herbicides, etc.); and seeds (mainly corn and soy segments, including the development of transgenic events).

During the merger analysis, the General Superintendence obtained information, consulted several market players and realized an active international cooperation with other competition authorities. There is evidence that the merger would increase the concentration within the pesticide markets, especially those involving insecticides and herbicides; markets of copolymers and ionomers, which are petrochemical products used in a wide range of final applications; and corn seeds.

Agreement proposal

Considering the competition concerns identified by the General Superintendence, Dow and DuPont proposed a Merger Control Agreement. By means of the ACC, the parties committed to divest a substantial assets’ portfolio in the affected markets, in Brazil and abroad.

Regarding the pesticides segment, the companies are willing to divest a considerable part of DuPont’s activities related to insecticides and herbicides, including their global research and development unit.  The commitments also includes relevant assets regarding research and developments (R&D) of the company worldwide.

As for the corn seeds’ segment, the parties proposed to divest a substantial part of Dow’s activities in Brazil, where the parties hold together a considerable market share. The assets’ portfolio includes a germplasm bank, productive units, research centers, brand, products under development (pipeline), among others.

The companies have also committed to divest Dow’s ionomers and copolymers of acid businesses held abroad.

The General Superintendence concluded that the proposed divestments reduce significantly the concentration in the affected markets, both in Brazil and abroad, and, for that reason, are sufficient to address the competition concerns that the merger has raised. The opinion recommended the Merger Control Agreement approval, which has been forwarded to CADE’s Administrative Tribunal, responsible for pronouncing the final decision on the case.

The transaction was notified on 12 August 2016 and its amendment was decided on 29 August. The answer to the amendment decision was presented on 13 October 2016. After that, CADE had the legal deadline of 240 days, which may be extended for additional 90 days, for issuing its final decision.