On 14 June, 2018, CCI approved the acquisition of the entire shareholding of Monsanto Company (‘Monsanto’) by Bayer Aktiengesellschaft (‘Bayer’) subject to the parties divesting certain lines of businesses in India. Both Bayer and Monsanto are large global agro-chemical companies with substantial business presence in India.CCI noted that both parties were amongst the largest global vertically integrated companies operating across the entire value chain of supply of agricultural inputs like seeds and traits, crop protection, and digital farming solutions. While reviewing the acquisition, in addition to assessing horizontal and vertical overlaps, CCI also examined conglomerate effects that could result from the parties’ complementary product portfolios.On 3 November 2017, CCI reached a prima facie view that the acquisition could cause AAEC in certain relevant markets. It issued a show cause notice to the parties asking them to demonstrate how the acquisition would not cause AAEC. CCI was not convinced by the parties’ response (including their reliance on divestitures offered by them in other jurisdictions), and initiated the detailed second phase review. Finally, after considering the parties’ and other stakeholders’ submissions, CCI concluded that the acquisition could cause AAEC in the following relevant markets:a.                   Market for non-selective herbicides in India (i.e. herbicides with broad spectrum applications): CCI noted that the acquisition would eliminate a strong competitive constraint in an already concentrated market with substantial entry barriers (upfront R&D costs, regulatory know-how, distribution network, intellectual property rights, etc.). This was because, apart from the parties, Syngenta was the only other ‘integrated R&D player’ (i.e. capable of discovering new active ingredients and developing new formulations) active in this market.b.                  Market of licensing of herbicide tolerant trait for seeds in India (i.e. traits which allow crop plants to survive the application of non-selective herbicides): Interestingly, while CCI noted that neither party had commenced commercialization of these traits in India (both parties had pending regulatory approvals), it still concluded that the acquisition was likely to cause AAEC. This was primarily because of the limited number of integrated R&D players with the ability to compete in this market which is marked by high barriers to entry in the form of high innovation costs and regulatory uncertainty  (in fact, CCI found no other competitor with a proprietary herbicide tolerant trait).  Accordingly, CCI concluded that the acquisition would cause AAEC in this market since it would result in the elimination of the threat to Monsanto from Bayer’s innovation activities, effectively removing Monsanto’s incentive to innovate.c.                   ‘Upstream’ market for licensing of Bt. trait for cotton seed in India: According to CCI, Monsanto enjoyed an extremely high share of this market, and Bayer was amongst the few sources of potential competition in this already highly concentrated market with high entry barriers in the form of long and uncertain regulatory process for entry as well as costly and complex R&D requirements.d.                  ‘Downstream’ market for commercialization of Bt. cotton seed in India: CCI noted that while in terms of current sales, the parties had relatively low combined market shares, most of their competitors were sub-licensees of Monsanto’s Bt. cotton traits. Further, CCI noted that Monsanto had decided not renew these sub-licenses and the ensuing litigation was currently pending at the Supreme Court.  Accordingly, per CCI, the parties’ competitors’ shares (as they stood) were not a good indicator of future market dynamics since their shares could even disappear completely depending on the outcome of the pending litigation. Given that context, and given that the parties were amongst the few vertically integrated market players with a nationwide distribution network, the parties were already in an advantageous position against their competitors. Consequently, the acquisition would only compound the parties’ relative advantage in the market. CCI also concluded that post-acquisition, the parties would have a strong incentive to use their market power in the ‘upstream’ market for Bt. cotton traits to foreclose their competitors in the ‘downstream’ market for commercialization of Bt. cotton seeds. While concluding that the acquisition could result in vertical foreclosure, CCI also relied on the complaints alleging vertical foreclosure already filed against Monsanto by its downstream competitors.e.                   Upstream market for licensing of parental lines or hybrids for rice seeds and the Downstream market for commercialization of hybrid rice seeds in India: The parties would enjoy a large combined share (45-50%) in the downstream market (albeit with a minor increment of less than 5%). However, CCI looked at Bayer’s strength in the upstream market for parental lines or hybrids for rice seeds, and concluded that the combined entity was likely to result in AAEC in the downstream market for commercialization of hybrid rice seeds.f.                    Upstream market for licensing of parental lines or hybrids for corn seeds and the Downstream market for commercialisation of hybrid corn seeds in India: While CCI noted that Bayer had quit the hybrid corn seeds business in India, it also noted that both parties had potentially competing gene stacks for corn seed upon regulatory approval for genetically modified corn seed. CCI observed that the acquisition would combine the parties’ strength of seed traits and trait stacks, which could cause AAEC in the market for licensing of parental lines or hybrids (including traits) for corn seeds in India.g.                   Upstream market for licensing of parental lines or hybrids for millet seeds as well as in the Downstream market for commercialization of hybrid millet seeds: CCI noted Bayer’s presence in the upstream market and the parties’ combined strength in the downstream market (combined shares of 25-30%, albeit with low increments of less than 5%), and concluded that the acquisition is likely to result in AAEC in the downstream market for commercialization of hybrid millet seed in India.h.                  Markets for each specific vegetable crop hybrid seeds in India: Citing (i) parties’ substantial presence in 10 of these specific vegetable crop hybrid seeds markets, (ii) lack of significant competitive constraints posed by minor competitors (with less than 5% shares in the respectively relevant markets), (iii) lack of competitive constraints imposed by the ‘secondary’ seed competitors (which rely on ‘primary’ seed companies like the parties), and (iv) the parties’ strong distribution network unmatched by most competitors, CCI concluded that the acquisition was likely to cause AAEC in 10 specific vegetable crop hybrid seeds markets (e.g., cabbage, cucumber, bitter-gourd, etc.).CCI also observed that the acquisition raised the risk of subduing competition in the innovation and development of new GM and non-GM traits, as well as in the downstream licensing industry when it came to innovation, royalty, and competitors’/customers’ access to such traits and traits stacks.Interestingly, CCI also noted that the acquisition was characterized by strong portfolio effects which would allow the combined enterprise to bundle their traits, seeds, and crop protection offerings in a manner as to exploit customers and foreclose competitors (e.g., by developing traits for seeds which the only work with the parties’ agrochemical products).  According to CCI, post acquisition, the parties could gain market power by adapting their global digital applications for Indian agriculture, and establishing a ‘one-shop-platform’ in the seed and traits value chain as well as the agrochemical supply chain. CCI also found the parties’ pooling of agro-climatic data (which would be far deeper and wider than their competitors’ because of the parties’ strong presence across the agrochemical, seed and trait, and crop protection value chains) to be another source of increased market power.Following from the competition concerns outlined above, CCI proposed a modification plan to address them (‘Remedies Package’). The Remedies Package comprised both structural as well as behavioural remedies. In terms of structural remedies, the parties are required to sell (to a purchaser to be approved by CCI): (i) Bayer’s global glufosinate ammonium business (which relates to the non-selective herbicides market), (ii)  Bayer’s global broad acre crop seeds and traits business, with limited exceptions (including the millet and cotton seeds business in India),  (iii) Bayer’s global vegetable seeds business  (to be sold as a whole and to a single purchaser to be approved by CCI), and (iv) sell Monsanto’s entire shareholding in Maharashtra Hybrid Seed Company Limited (‘Mahyco’). The Remedies Package also contained, inter alia, the following behavioural commitments applicable for a period of 7 years: (i) broad-based, non-exclusive licensing of GM as well as non-GM traits on a fair, reasonable and non-discriminatory (‘FRAND’) basis; (ii) non-exclusive licensing of non-selective herbicides or their active ingredients in the case of launch of the GM/non-GM trait in India which restrict the purchasers from using specific non-selective herbicides being supplied only by the parties, on a FRAND basis; (iii) granting access to the parties’ digital platforms and parties’ agro-climatic database on FRAND terms through non-exclusive, non-transferrable, non-sub-licensable, royalty bearing licenses; (iv) committing to mandatorily extending any better licensing terms offered to one licensee of the parties (e.g., for Bt. cotton technology or other GM/non-GM trait or technology) to all such existing and future licensees in India; (v) undertaking not to bundle products in a manner that could have the effect of excluding competitors; and (vi) maintaining non-exclusive distribution channels for supply of agricultural products.

*Combination Registration No. C-2017/08/523.