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Dow, DuPont merger wins conditional approval in China

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Chinese regulators have conditionally approved the proposed merger between DuPont and the Dow Chemical Co.

It is the second major victory for the $130 billion merger, which was approved by the European Union earlier this year. In a joint statement, the companies said the Chinese endorsement puts the deal on track to close sometime in August.

Consent from the Chinese Ministry of Commerce was needed before the deal could be completed. However, Chinese approval was never in doubt, according to Matt Arnold, an analyst with Edward Jones in St. Louis.

"The European Union approval was viewed as the most difficult to obtain and they have already received that," he said. "This was another milestone to be passed, but not one anyone was worried about."

Investor expectations that China would approve the merger was reflected in both companies' stock price. In late afternoon trading, DuPont's stock was up 0.1 percent to nearly $80 per share, while Dow's stock dropped less than a percent to $62.44 per share.

Dow and DuPont are now awaiting the greenlight from the United States, Canada, Brazil and Australia. If approved, the deal would see the two giants form to create DowDuPont, a massive corporation with holdings in agriculture, electronics and communications, nutrition and other markets. DowDuPont would operate for roughly two years before splitting into three separate, independent companies.

The Agriculture and Specialty Products businesses created through the merger will be spun off as Delaware-based businesses. A third company with a focus on material sciences will be based in Dow's hometown of Midland, Michigan.

China's conditions for approving the deal included the two companies making commitments to the supply and distribution of certain herbicide and insecticide ingredients and formulations for rice crops in China for a period of five years after the merger as closed.

China is also requiring the same concessions as the European Union. In order to gain approval in the EU, DuPont agreed to sell part of its crop protection business along with its associated research, excluding seed treatment, nematicides and late-stage research programs. Dow agreed to part with its acid copolymers and ionomers business.

In March, DuPont sold a portion of its crop protection unit and its research to FMC Corp., a Philadelphia-based company. As part of that deal, DuPont acquired FMC's nutrition and health business.

"China is a critical market for both Dow and DuPont and will be for the three intended independent companies that will be created following the merger," Dow and DuPont said in a statement.

Salil Mehra, an antitrust professor at Temple University Law School, said the companies could make additional concessions to win approval in the remaining jurisdictions.

"When you make concessions like this, it becomes harder to tell other jurisdictions that you will not make concessions especially since they have the same type of consumers," he said.

International regulatory authorities have been insisting on concessions because of the merger mania that has dominated the agriculture market in the last year. In 2016, five of the world's six largest agriculture companies agreed to separate mergers. Bayer has struck a deal to acquire Monsanto, and ChemChina, a Chinese company, is buying Syngenta. If all three mergers are approved, three businesses would control 62 percent of the world's patented seeds and 62 percent of all pesticides.

"Jurisdictions are looking at this merger from perspective of going from six agriculture companies to three," Mehra said. "You expect that these concessions will not just address this merger, but the overall consolidation in the industry."