On September 23, 2016, ChemChina notified to the Commission its proposed acquisition of the Swiss-based global seeds and crop protection company Syngenta. ChemChina is a Chinese state-owned company, active in Europe through its subsidiary Adama Agricultural Solutions, an Israeli company primarily active in the manufacturing and distribution of offpatent formulated crop protection and pest control products and the largest producer of generic crop protection products in the world.
The Commission approved the acquisition on April 5, 2017, about 14 months after ChemChina’s offer was announced. The Commission took a typically narrow approach to market definition. The Commission regarded each raw material and active ingredient as a separate market, with broad geographic markets (global or EEA-wide). The Commission divided herbicides between non-selective herbicides and selective herbicides by crop; insecticides based on the relevant crop and application segment and again based on the type of insect targeted; fungicides based on application segment, crop and disease level; and plant growth regulators between insecticides, fungicides and by crop. The Commission defined the geographic markets for these products as national in view of the regulatory barriers.
Following this narrow approach to market definition, the Commission identified 462 markets in which the parties competed and had combined shares over 20 per cent, making them so-called “affected markets” requiring further investigation. The Commission applied two filters to identify markets where concerns were unlikely to arise, one based on market concentration as measured by the Hirschmann-Herfindahl index, and a second where the parties’ combined market shares were below 30 per cent and at least three significant alternative competitors were present. The Commission was able to rule out issues in other markets based on individual assessments. It also ruled out concerns in merchant active ingredients, in view of the existence of spare capacity in the market and the presence of alternative suppliers, as well as vertical concerns arising from the combination of upstream and downstream activities from merchant active ingredients to downstream crop protection product markets.
The remaining concerns involved 115 markets covering seven crop categories. The Commission focused on these markets based on the parties’ market shares, the closeness of competition between their products, the existence of pipeline products and the lack of generic competition (other than from Adama) in those markets. To address these issues, the parties agreed to divest a significant part of Adama’s existing pesticide business, including 29 of its generic pesticides under development, its seed treatment business, its plant growth regulators business, all relevant assets underpinning its pesticide and plant growth regulators businesses and some of Syngenta’s pesticides.
Although ChemChina agreed to significant divestitures to win approval, the Commission was relatively flexible in its requirements. The Commission did not require an up-front buyer for the divested business, suggesting that it was more confident a suitable buyer could be found than in it was in Dow/DuPont. The divestiture package consisted of a varied group of assets, contracts and personnel (including a mix of Adama and Syngenta assets), not a stand-alone business. The Commission raised no concerns about innovation competition and did not require divestiture of R&D capabilities. On the other hand, the fact that several of the divested products were pipeline products indicates that the Commission did not limit its scrutiny to overlaps in existing products.
Another noteworthy aspect of the case is the Commission’s approach to competition between patented and generic products. The Commission found that Adama is a close competitor of Syngenta in many pesticide markets. The Commission considered Syngenta’s branded products and Adama’s generic products as part of the same markets. This approach is in line with the Commission’s approach in the pharmaceutical sector, where it has held that originator drugs and generic copies belong to the same relevant product markets, as generics can effectively substitute originator drugs after patent expiry.7