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The wave of agribusiness mergers and acquisitions is likely to continue rolling.
After several blockbuster deals that have been announced since December, analysts said the divestitures required to make those tie-ups possible should continue to fuel activity. Strategic buying and participation by private equity players are also expected to play a role.
Yet the prospective consolidation is not without opposition. As more M&A proposals surface across the industry, critics contend that additional activity will lessen competition throughout the sector, and drive up prices for farmers and consumers alike.
"If you look at how the seed and chemical market landscape looks in North America and Europe, it's very difficult to see all of these going ahead without some spinoffs being required," said Ben Isaacson, an analyst at Scotiabank in Toronto.
In the crop chemicals and seeds sectors, M&A activity has been driven largely by low commodity prices and a greater desire to achieve economies of scale, as well as efforts to lower costs and keep margins relatively stable, as farmer incomes remain under pressure.
On the fertilizer side (potash, phosphate and nitrogen), transactions have been driven by companies looking to expand retail distribution or add capacity to boost profits at a time where there's oversupply in fertilizers. It be can cheaper for an established company to buy existing assets, such as a potash mine, than to build them — and in so doing, the buyer can sometimes broaden its geographic presence and make an acquisition additive to earnings.
Activist investors have played a role in the consolidation frenzy by pushing for change and sometimes becoming supporters of deals, such as the proposed $130 billion merger of Dow Chemical and DuPont. Billionaire Nelson Peltz and his Trian Fund Management pushed for change at DuPont, which ultimately led to a deal with Dow Chemical.
Other big tie-ups in the works are state-owned China National Chemical (ChemChina), which has agreed to buy Swiss seeds and pesticide maker Syngenta for about $43 billion, as well as Bayer's new $62 billion unsolicited bid for Monsanto. The last formal response by Monsanto was in a release issued May 24, when it rejected the German chemical company's proposal. When contacted last week about the offer, a Monsanto spokesperson said the company does "not intend to comment further regarding the status of any discussions."
"In our view, a Bayer/Monsanto combination helps to ensure the new company will remain a leader among a changing [agribusiness] backdrop with a more formidable competitor in Dow/DuPont and likely market disruption from the potential Syngenta/ChemChina combination," Piper Jaffray analyst Brett Wong said in a research note this month.
Wong said Bayer would likely need to shed some assets to avoid regulatory issues getting in the way of a potential closing.
"For antitrust purposes, we expect that Bayer will have to divest seed crossover, which would be primarily cotton, canola and some vegetables," he said. "Assuming that BASF is the stand-alone ... [agribusiness] major at the end of this consolidation wave, we believe BASF (a chemical producer based in Germany) would potentially be a leading strategic buyer of the divested seed assets given its historical intent to purchase a seed business. "
France's seed and cereal products company Groupe Limagrain might want "various seed assets" from Bayer, Wong added. And Australia's Nufarm or India's Mahyco may want in on the action too, he said.
If Bayer's herbicides were divested to push through the transaction, there would be buyer interest for those assets as well, according to the Piper analyst. He said if a strategic buyer were to pass on Bayer assets that might be shed, there's a chance private equity (including agribusiness-focused funds) might pursue such a transaction.
Meanwhile, another agriculture-related deal could go down in the next few weeks — fertilizer company Mosaic and Brazil's Vale. Reuters has reported the two are in talks for Mosaic to buy Vale's fertilizer unit, valued at about $3 billion. Based on the report, that would leave Vale as the largest shareholder in Mosaic, a Minnesota-based company formed in 2004 by the merger of IMC Global with Cargill's fertilizer business. Mosaic and Vale declined comment.
Some lawmakers and critics of the consolidation believe the concentration of agribusiness ownership into fewer hands is bad news for farmers' wallets and ultimately, consumers.
"Our concern as competition advocates is that this is not good for farmers at all," said Diana Moss, president of the American Antitrust Institute, a nonprofit group that is protesting the Dow Chemical and DuPont deal. "We know farmers have already paid higher prices for (seed) biotechnology … and are getting squeezed on the other end as well in terms of the prices that they receive for their crops."
The Dow and DuPont merger would result in a newly created company, DowDuPont, with significant agricultural and chemical operations around the globe. It would eventually create three spinoffs, including an independent agribusiness unit. With about $20 billion in revenue, that new agribusiness spinoff would leapfrog Monsanto, the St. Louis-based seed and tech powerhouse with $15 billion in revenue in its latest fiscal year.
Sen. Charles Grassley, R-Iowa, who chairs the Senate Committee on the Judiciary, this month wrote a letter to the U.S. Department of Justice's Antitrust Division expressing concerns the Dow and DuPont deal "will decrease competition in an agricultural sector that has already been subject to a number of waves of consolidation in recent years."
"I have heard concerns that the proposed merger will alter agricultural input markets for seeds and chemicals," Grassley wrote in the letter dated June 14.
"I have heard concerns that the merger will vertically integrate traits, seeds and chemicals, which will make it more difficult for smaller biotechnology companies, independent producers and independent crop input companies to compete," he continued. "I also have heard concerns that the merger will reduce cultivation, chemical and seed choices for farmers, as well as raise prices for them, which ultimately will impact consumers and the food system."
A spokesperson for Dow Chemical defended the proposed deal in a prepared statement issued to CNBC.
"We are cooperating with regulatory authorities as they review the proposed merger transaction, which we believe is pro-competitive and good for farmers and consumers. We anticipate that the regulatory review will be a thorough process," the statement said.
Midland, Michigan-based Dow Chemical says the proposed deal is likely to close in the second half of 2016, subject to customary regulatory clearances and stockholder approval. Dow Chemical expects the planned spinoff of three independent, publicly traded companies to happen "as soon as practical, but not to exceed 18 to 24 months after the transaction closing."
Stockholder meetings to vote on the proposed Dow Chemical/DuPont merger are scheduled for July 20.
Grassley and others have likewise expressed concern that consolidation within the agricultural biotechnology sector could ultimately curtail research and development activities and industry innovation.
"ChemChina's existing crop protection business is relatively small and there is very limited overlap with Syngenta, " a spokesperson for Syngenta said in a written statement. "Following the transaction Syngenta will remain Syngenta, with a broad portfolio and geographic presence, and with a long-term commitment to R&D investment across technology platforms and across crops."
"The transaction therefore ensures continued choice for growers at a time when considerable consolidation is taking place in the agricultural industry."
Syngenta expects the deal with ChemChina, which was announced in February, to close by the end of the year.