September 2, 2016

The U.S. Department of Justice (DOJ) filed a civil antitrust suit in an Illinois federal court to block Deere & Company from moving forward on its acquisition of Precision Planting from Monsanto.

Announced in November 2015, John Deere signed an agreement with Monsanto subsidiary The Climate Corporation to acquire the Precision Planting LLC equipment business for an undisclosed amount. The transaction represents a deal that will give certain John Deere farm machinery exclusive, nearly real-time data connectivity with the Climate FieldView platform. If successful, it will also be the first instance within the industry of near real-time in-cab wireless integration between John Deere equipment and a third party.

Under the terms of the original agreement, Deere would acquire the Precision Planting brand along with factories and the bulk of the unit’s line of products including all of its hardware, sensors, actuators, and display systems, as it advances its strategy to use technology to increase farming efficiency and productivity.

The Department of Justice claims that to allow the deal to progress would impede competition in the precision planting space given that the two companies vastly dominate the industry, together accounting for 86 percent of U.S. sales.

“Precision Planting has been a key innovator in high-speed precision planting and Deere’s only significant competitor in developing and selling these technologies,” said the DOJ in a statement announcing its decision. “If this deal were allowed to proceed, Deere would dominate the market for high-speed precision planting systems and be able to raise prices and slow innovation at the expense of American farmers who rely on these systems.”

The Wall Street Journal reports that both Monsanto and Deere have stated that they are determined to dispute the lawsuit, labeling the reasoning driving the Department of Justice’s decision as “misguided”.

“The proposed acquisition benefits farmers by accelerating the development and delivery of new precision equipment solutions that help farmers increase yield and productivity,” the companies said in a joint statement.

The DOJ elaborates on its concerns explaining that the deal would result in John Deere making and selling large planting machinery that includes precision farming capabilities, which J.P. Morgan analyst Ann Duignan told the St. Louis Post-Dispatch cost approximately $150,000, and Precision Planting retro-fit kits, which Duignan says would costs approximately $30,000.

“By offering farmers high-speed precision planting retrofit kits at a fraction of the cost of a new planter, Precision Planting posed a formidable challenge to Deere and its profitable sales of new planters,” the Justice Department said in its complaint.

“Competition in precision agriculture is strong and growing in all of these channels as companies around the world continue developing new technologies,” counters Deere and Monsanto. ”The acquisition will enable broader access to these advancements by ensuring farmers have the choice to either buy new machinery or retrofit older planting equipment with the latest new innovations.”

After multiple seasons of falling commodity prices, falling farm incomes, and an oversupply of used farm equipment on the market, the farm machinery and precision ag industries have been facing challenging headwinds, leading both companies to hope that a successful deal could result in farmers wanting to update their machinery and agtech capabilities.

Outside of the proposed deal between John Deere and Monsanto for the takeover of Precision Planting, the two companies have also forged a second agreement according to The Wall Street Journal that will facilitate the sharing of data from John Deere equipment with Monsanto’s Climate unit for evaluation and analysis. Both companies are moving forward with this integration despite the suit filed by the DOJ.

In addition to the John Deere-Monsanto deal, the U.S. government has had a full docket of large scale agricultural mergers to review. In December 2015 Dow and DuPont announced the proposed $130 billion all stock, 50/50 mega-merger of the two chemical and agricultural giants to form DowDuPont. Then, only weeks ago, the Committee on Foreign Investment in the United States (CFIUS) granted approval for the $43 billion takeover of Syngenta by ChemChina, while Canada’s Agrium and Potash Corp. announced they are engaged in negotiations regarding a possible merger that would create an agribusiness giant valued at $30 billion.

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Lynda Kiernan