Monsasnto-Syngenta Megamerger Chelsea Hutchings, Abiola Odubona, Xirur Wu, Qi Zhao What makes a megamerger? • Under the Hart-Scott-Rodino Antitrust Improvements Act, mergers must be reported to the Federal Trade Commission if the deals exceed a set dollar threshold. • A merger is known as megamerger when it exceeds the $500 million reportable merger transaction (RMT) threshold. It occurs between extremely large and powerful enterprises (Federal Trade Commission,n.d.) Pros and Cons of Megamergers Note: Concentration within an industry refers to the degree to which a small number of firms provide a major portion of the industry's total production. If concentration is low, then the industry is considered to be competitive. If the concentration is high, then the industry will be viewed as oligopolistic or monopolistic (Investopedia) • The agriculture market is already highly concentrated with Monsanto accounting for 70% of the corn seeds and 60% of soy bean seeds. “Monsanto is the world’s largest agricultural seed player, with a total global market share of 26% in the global seed industry.” (Ariel 2015) Pros of a Megamerger • Combining company expertise allows for greater efficiency in serving farmers and consumers (Purdy 2016) • There are usually several spin-offs, divestments, or asset sales that can give companies (especially smaller ones) ample growth opportunities (Ghemawat 2000) Cons of a Megamerger • Higher market concentration, leading to loss of head-to-head industry competition and reduction in incentives to invest in research and development (USA Today) • “Mergers will have potentially adverse effects that could reduce innovation, increase seed costs and raise consumer food prices.” – Diana Moss, President of the American Antitrust Institute • “They will eliminate head-to-head competition in markets for certain crop seed and chemicals.” – Diana Moss Key Legal Impacts of Megamergers • First, it will make dissolution of Company in some extent. During the process, the merged company is taken into the surviving company, and the merged company lost the legal personality. In the dissolution of the company, the one company body eliminates, and its creditors are liquidated. The surplus property is allocated to the shareholders. The merger of the company resulted in the change of the company, and new establishment. • Second, the megamerger of the company leads to the transfer of rights and obligations. The concept of the continuation of the merged company is legally represented by the surviving company and the new company owns all the rights in the public and private law previously owned by the company. And the surviving company is based on the contract and other laws to implement the claims. • Third, the megamerger of the shareholders leads to the re-entry of shareholders. The merger is mainly carried out by way of stock conversion, and the shareholders of the company are merged at the same time. According to the terms of the merger contract, the holding company or the new company's shares will obtain the company or the new company's shareholders status. • Finally, it can make company to change in other legal conditions. After the megamerger of the Company, it has made significant changes in the registered capital, organization, business scope and mode of operation. • So in some extent, it is not benefit to megamerger between two companies. Ethical Impact of Megamergers • Megamergers are inconsistent in the level or moral development. Corporate ethics in the conflict have a potential ethical risk. This condition will bring the company to integrate problems. After the success of a megamerger because of different ethical standards and professional ethics, new employees and managers have newly developed problems with cooperation and confliction. Practical Impact of Megamergers The stiff competition between the public and private magnitude is high such that the government legislative tendency can bind private business with strenuous regulations and laws, hence, increasing the merging cost. It should be noted that since private business sector would wish to acquire and merge in accordance to market set principles, hence, the government would not involve in acquisitions and mergers that have comparatively least cost agency. Therefore, the benefit, in this case, would shift to the businesses that are wishing to acquire or merge. It is apparently true that reducing the cost agency is reasonably sufficient to enable the government in encouraging acquisitions and mergers. In addition, the agents and governments can be encouraged to acquire and merge particularly if there is undervaluation and overvaluation of cost agency. Practical Impact of Megamergers Cont. • Because the acquiring company’s management overestimates itself, it is suggestively correct that the increase in agency cost ad share prices are the ingredients of acquisitions and mergers significantly In addition, the acquiring company’s management can increase the takeover cost particularly where the government is privatizing its agency. When considering the issue of companies’ merger, it is imperatively to evaluate whether the merger will have any perceivable benefits. Emphatically, mergers have not been working to the public interests but for the interests of the shareholders and top executives. Cont. • Cultural clash • Since the merger of companies it is the joining of groups of people with differing corporate culture, this can lead to cultural conflicts For instance, if entrepreneurial and innovative company were to merge with a conservative organization, the employees will experience difficulties in working together Cont. • Diseconomies of scale Usually, business companies merger in order to achieve economies of scale However, when they merger, per init cost of production increases, hence creating diseconomies of scale essentially, the economies o scale often arise from consolidation of manufacturing at one company, which is elimination for administrators and workers Cont. Leadership issues Leadership discontent can crate cultural conflicts Since the newly created company will require new management, if the leadership were to be provided by say company A, the employees for the company B would feel humiliated, This can lead to talent drain and lack of motivation Ethical Impacts of Megamergers Cont. • After the companies have merged, the prices of products tend to be higher because the merger minimizes market competition, and thus, creating monopoly power. With higher market share and less competition, the new merged companies can increase their prices, which is to disadvantage of the consumers. For instance, in our case, the merger between the Monsanto and Syngenta companies would lead to increase in price of agricultural chemicals. In addition, merging of Monsanto and Syngenta can lead to decrease in choices for consumers in the market. This merger would also job losses since various workers working with these companies would lose their jobs. The merger can also lead to cultural clashes over the leadership discontent. Since the new company would require new leadership. if the company A’s executive takes the lead, the personnel from Company B would feel such undermined, hence creating a mistrust and talent drain due to lack of motivation. Scholarly Articles • The Effects of Mega Mergers On Innovation and Economy • WASHINGTON — Agriculture company executives insisted the industry's flood of innovation. But members of the U.S. Senate's Judiciary Committee remained skeptical, insisting fewer market players means less choices for farmers and consumers. • The chief executive of Bayer Crop Science North America, testified that the Monsanto merger is necessary to help farmers meet the food demand created by a rising population. "This type of change enables more innovation and delivers better products to the farm even faster". Diana Moss, president of the American Antitrust Institute, said the mergers will have "potentially adverse effects that could reduce innovation, increase seed costs and raise consumer food prices. She said the Dow-DuPont and MonsantoBayer mergers could be particularly devastating. They will eliminate head-to-head competition in markets for certain crop seed and chemicals. • Jeff Mordock The (Wilmington, Del.) News Journal (2016, September 20). Agriculture executives defend merger 'tsunami’. Retrieved October 17, 2017 from https://www.usatoday.com/story/money/nation-now/2016/09/20/agriculture-executivesdefend-merger/90741422/ • How Do You Successfully Merge Two Corporate Cultures? • The success of most mergers or acquisitions heavily depends on the capacity of the two merging firms to integrate their employees into a unified whole. Mergers fail for several reasons but cultural differences increase to be a major cause of dysfunction post-merger. Failing to successfully integrate the companies’ cultures is a very serious thing. Some examples of merged organizations who failed to come together culturally. Compaq and Digital Equipment Corp. which was unsuccessful largely due to a culture clash that eroded Compaq’s high volume lengthy sales cycles. fast-to-market strategic focus against DEC's more convoluted and lengthy sales cycles. Indeed, the business challenges created by the culturally troublesome merger are viewed as a reason that Compaq lost its position as the No. 1 computer maker to Dell, its longtime competitor. • Integrating two corporate cultures typically revolves around "cultural content"—the norms, beliefs, and values that lead to general descriptions of the firms such as bureaucratic, entrepreneurial, free-wheeling, or conservative. The predicted success or failure of any given merger is based upon an analysis that takes this cultural content into consideration. • Glenn Carroll: How do you successfully Merge Two Corporate Cultures? October 1, 2006 by Alice LaPlante, Retrieved October 18, 2017, from https://www.gsb.stanford.edu/insights/glenn-carroll-how-doyou-successfully-merge-two-corporate-cultures Refrences • Dennis, D. K., & McConnell, J. J. (2011). Corporate mergers and security returns. Journal of Financial Economics, 16(2), 143-187 • Ghadar, P. G. (2016, May 09). The Dubious Logic of Global Megamergers. Retrieved October 17, 2017, from https://hbr.org/2000/07/the-dubiouslogic-of-global-megamergers • Investopedia. (2017 March 07). Types of Markets & Concentration Measures. Retrieved October 15, 2017, from http://www.investopedia.com/examguide/cfa-level-1/microeconomics/markets-concentration-measures.asp • Marks, M. L., & Mirvis, P. H. (2013). THE MERGER SYNDROME-WHEN COMPANIES COMBINE, A CLASH OF CULTURES CAN TURN POTENTIALLY GOOD BUSINESS ALLIANCES INTO FINANCIAL DISASTERS. Psychology today, 20(10), 36. • Mordock, J. (2016, September 20). Agriculture executives defend merger ‘tsunami’. Retrieved October 17, 2017, from https://www.usatoday.com/story/money/nation-now/2016/09/20/agriculture-executives-defend-merger/90741422/ • Purdy, C. (2016, September 20). Six companies are about to merge into the biggestfarm-business oligopoly in history. Retrieved October 15, 2017, from https://qz.com/786382/monsanto-bayer-dupont-dow-chemical-and-syngenta-defend-their-coming-oligopoly-mon-dd-dow-syt/ • Steve Ariel (2015, December 15). Introducing the Mega Deal between Monsanto and Syngenta. Retrieved October 15, 2017, from http://marketrealist.com/2015/12/introducting-mega-deal-monsanto-syngenta/ • Glenn Carroll: How do you successfully Merge Two Corporate Cultures? October 1, 2006 by Alice LaPlante, Retrieved October 18, 2017, from https://www.gsb.stanford.edu/insights/glenn-carroll-how-do-you-successfully-merge-two-corporate-cultures • Jeff Mordock The (Wilmington, Del.) News Journal (2016, September 20). Agriculture executives defend merger 'tsunami’. Retrieved October 17, 2017 from https://www.usatoday.com/story/money/nation-now/2016/09/20/agriculture-executives-defend-merger/90741422/
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