| Published by Felicity Iredale
Written by Felicity Iredale, Lawyer at Russell Kennedy Lawyers and Isobelle Pepe, Law Graduate at Russell Kennedy Lawyers.
The announcement of the three mega-deals, all of which are still undergoing reviews by various government agencies, are expected to be finalised by the end of 2017:
All three mergers appear as though they will soon be approved by the regulators. The likely outcome of these mergers and whether the combined research and development (“R&D”) efforts will be smaller than the additive sums of the individual enterprises will be reviewed.¹
Syngenta recently accepted the $43 billion offer from ChemChina, making it the most expensive foreign takeover in Chinese history. This deal requires regulatory approval in Europe, where Syngenta is headquartered, and the United States, where a number of Syngenta assets are based.
ChemChina Chairman, Ren Jianxin, has promoted the merger by saying that it will “increase global crop yield while conserving scarce natural resources,” and adding that the merger would provide growth opportunity in China, "where there is rapid modernisation driven by the need to increase grain productivity and increase food quality".² Additionally, this merger has also instilled hope into buyers, who are now expected that ChemChina's ownership of Syngenta will help speed China's process of evaluating new biotech seeds.
The opinion on the impact on research is divided. Some researchers suggest that it will improve the quality of research while others have said that research may become too specific to the areas ChemChina and Syngenta operate in. There is also concern that because of the lack of competition, research won’t have varying points of views and may lack contention.
If the Bayer-Monsanto merger goes ahead, it will make Bayer-Monsanto the largest seed and farm chemical company with a strong presence around the world. The merger of Bayer and Monsanto would create the world’s largest supplier of seed and crop-protection products. The combined company would own 37% of the market for corn seed and 30% of the market for soybean seed.
Bayer says that combining R&D as well as various product lines will make the two companies worth more together than separately because of their shared knowledge and resources. Others take a less optimistic view and believe that the merger will reduce the research and innovation in the industry as a result of the merging of the departments. Researchers are also suggesting that less competition will result in less R&D.
Bayer’s expected 2017 R&D spending was $4.88 billion. Monsanto’s expected 2017 R&D spending was $1.66 billion.³ Specifically, sources state that the Bayer-Monsanto merger has planned to spend $16 billion on R&D worldwide over six years — an average of $2.67 billion per year. However, a look at their current research and development budgets revealed that, when added up, the two companies already spend approximately $2.59 billion per year, so the combined increase in funds amounts to less than $500 million over six years, or around an $800,000 difference per year.4
Another concern is that many companies are not releasing their R&D funding statistics and fewer companies are willing to provide R&D projections. Martin Grueber, a research leader at Battelle Memorial Institute, has suggested that this is because investors don’t have a good grasp of how hard R&D is. Companies have decided, Grueber said, that “if you can get away without saying something, it raises fewer questions.5
Chemical and Engineering News (C&EN) has also stated that Robb Farley, Monsanto’s CEO, has acknowledged the steady decline spent on R&D.
Alternatively, others have suggested that the amalgamation, will result in a more effective and targeted R&D team, and therefore, the original combined amount of funding is not required. It has also been suggested that once the mergers have been finalised, the profits of the companies will increase and therefore, enable more R&D to be conducted.
The Dow-DuPont merger has also received criticism because of the predicted hit that the R&D team will take. The reason for this is that investors do not see much of a return on R&D and as a result of cost cutting, many R&D jobs will be lost. However, a predicted upshot of this is that jobs will move from research to product development.
As a result of an overall restructuring program, Dow-DuPont’s spending will drop to a similar amount that it was at in 2010. The restructuring program includes eliminating 10% of its 54,000 employees and cutting costs by $700 million in advance of the merger with Dow. According to C&EN sources, those cuts included the dismissal in January of more than 200 scientists at DuPont’s Central R&D team.
Survey results from C&EN state that DuPont’s R&D spending fell 8.2% in 2015 to $1.9 billion and in 2016, it fell by 13% to between $1.6 billion and $1.7 billion.6 It is also suggested that R&D in these industries have not increased since 2015, rather, many of them have reduced the amount of funding.
On the contrary, it is suggested that that Dow-DuPont will become of powerhouse of innovation. For example, allowing the scientists from each of their previous R&D departments to work together, is more likely to generate more innovative products.
There are numerous R&D predictions regarding these mergers. Some researchers suggest that resources will be pooled together and therefore research will be more effective and targeted.
It has also been suggested that it will mean research won’t be unnecessarily repeated on the same outcomes.
The alternative approach to these mergers is that research will become specifically targeted to that organisation, research may become siloed to a specific part of that company and that the research will lack contention.
Regardless of how R&D is affected, it appears as though all three mega mergers are going ahead.
© Russell Kennedy. All rights reserved. No part of this Alert may be reproduced, in whole or in part, by any means whatsoever without the prior written consent of Russell Kennedy.¹ R&D Magazine Supplement: 2017 Global R&D Funding Forecast, Winter 2017