Bayer-Monsanto — Is D.C. Fertile Ground for Their Merger?

News reports have confirmed that Bayer AG has made a bid for Monsanto, a move that could create the largest agrochemical company in the world. Details are still emerging, but in Washington, the key question is whether regulators would approve such a deal.

The Obama Administration has torpedoed a number of high-profile mega-mergers in recent years:

· AT&T and T-Mobile in 2011 proposed a $39 billion deal that would have created the largest wireless carrier in the United States. Just as the merger seemed to be building a good head of steam, the Department of Justice sued. The subsequent opposition by the Federal Communications Commission drove the final nail in the coffin.

· The Time-Warner Cable / Comcast deal died last year from the FCC simply dragging its feet.

· The Treasury Department this spring thwarted Pfizer’s $160 billion takeover of Allergan with new proposed regulations on tax inversions.

· The DOJ this April sank the $34 billion merger of oilfield services firms Halliburton and Baker Hughes.

· And Staples and Office Depot recently retreated from their proposed merger in the face of fierce opposition from the Federal Trade Commission.

While certainly many recent mergers have successfully survived regulatory scrutiny, the perception, real or not, is that the Obama Administration takes a dim view of mergers.

The Bayer takeover of Monsanto will likely raise some concerns at the Antitrust Division of the DOJ. Bayer and Monsanto have considerable overlap in the seeds business, particularly canola, where the combined company would hold 70 percent market share.

The Bayer-Monsanto announcement comes on the heels of two other huge deals in the agrochemical sector — Dow and DuPont, as well as ChemChina and Syngenta. If both those deals pass regulatory scrutiny, each combined company would be roughly equal in size. Yet a combination of Bayer and Monsanto would dwarf both companies, and leave BASF trailing in fourth place.

Whether the proposed combination could address legal concerns — perhaps through a divestiture of some of their assets — remains to be seen, but leaving aside the legal reasons that could derail the merger, the political environment could be toxic to the deal.

Bayer, after all, is a European company acquiring an American one. All of a sudden, the prospect of foreign companies acquiring American ones has become much less welcome in Washington. The Pfizer-Allergan merger involved essentially moving a U.S. headquarters abroad, and accordingly prompted extraordinary efforts by the Treasury department to thwart the deal.

On the right, a foreign takeover of a U.S. blue-chip company could easily be the target of Donald Trump, who is famous for xenophobic rhetoric over immigrants and free trade already.

On the left, well, Bernie Sanders — has he ever approved of a corporate merger? And it doesn’t make sense for Hillary Clinton to stick her neck out for a merger that would only cause her grief from the left flank.

The Monsanto takeover comes with another twist: Monsanto is a St. Louis based company, located in the important electoral state of Missouri. Monsanto would join a long line of St. Louis based companies acquired in recent years, most famously InBev’s takeover of Anheuser-Busch.

A recent Washington Monthly piece, The Real Reason Middle America Should be Angry, describes how the economic fate of St. Louis and other middle-American cities may be “the result of decisions in Washington, influenced by a small group of legal scholars and economists, to overturn antitrust laws passed by elected officials of both parties over the course of the twentieth century. These decisions…changed the rules of America’s economy…in which monopoly power isn’t fought but catered to, in which economic opportunity isn’t disbursed but consolidated, in which fewer cities — and fewer Americans — get a fair chance to compete.”

Regardless of the merits of that argument, it reflects a sentiment that is metastasizing — both in the heartland of America and inside the Beltway. Opponents of mergers, including the Bayer/Monsanto deal, need only harness this zeitgeist.

What will BASF, Dow and DuPont do in the face of the proposed Bayer/Monsanto merger? How will Capitol Hill — particularly the Missouri delegation — react? The various agricultural sectors? A diverse group of interests all have a stake in the outcome of a regulatory review of this merger.

Grab your popcorn, and enjoy the show.