by David McLaughlin

Bayer AG’s plan to win antitrust approval for its takeover of Monsanto Co. hasn’t satisfied U.S. officials who are worried the merger could hurt competition, according to two people familiar with the matter.

The Justice Department’s antitrust division doesn’t think Bayer’s proposal to sell businesses goes far enough, said the people. The government wants the German chemicals company to divest more assets to resolve its concerns, said one of the people, who asked not to be named because the investigation is confidential.

Negotiations between the two sides are continuing and a final decision by the government is probably months away, the person said. Talks have been constructive as Bayer has taken steps to address the government’s concerns, the person added.

Monsanto tumbled the most in two years on the news, and Bayer erased most of its gains for the day. Representatives for Bayer, Monsanto and the Justice Department declined to comment.

Bayer’s $66 billion takeover of St. Louis-based Monsanto is part of a wave of consolidation that has swept seed and crop-chemical firms. The companies are seeking approval from U.S. and European officials after two previous deals - the combination of Dow Chemical Co. and DuPont Co. and China National Chemical Corp.’s takeover of Syngenta AG - won antitrust clearance.

Proposed Asset Sales

Bayer, which is based in Leverkusen, Germany, has agreed to sell seed-and-agrochemical assets to BASF SE for $7 billion. BASF is also in talks to buy Bayer’s vegetable seed business. BASF is viewed by U.S. officials as a good buyer that can compete effectively in the business, one of the people said.

Monsanto shares fell as much as 4.6% to $117.50 on the news, $10.50 below the $128-a-share Bayer has agreed to pay for the company. That spread, close to 10%, implies investors believe the deal, which has already been before regulators for 18-months, is a long way from closing.

Monsanto shares were down 4% to $118.17 at 2:46 p.m. in New York. Bayer shares, which traded as high as 97.04 euros ($119.45) on Thursday in Frankfurt, fell to as low as 95.24 euros after Bloomberg reported the news and closed down less than one percent at 94.84 euros.

The U.S. review is being led by Assistant Attorney General Makan Delrahim, who emerged as an aggressive enforcer after filing a lawsuit to block AT&T Inc.’s takeover of Time Warner Inc. That case is set to go to trial on Monday.

CEO Meetings

Delrahim has met with Bayer Chief Executive Officer Werner Baumann and Monsanto CEO Hugh Grant. If the companies and the antitrust division can’t reach an agreement that resolves the government’s concerns, the Justice Department could file a lawsuit seeking to block the deal.

In its review of the proposed merger, the Justice Department is looking at horizontal antitrust issues, or competition in the same market, as well as vertical competition, or issues along supply chains, one of the people said.

Delrahim has taken a hard line on resolving vertical competition problems. These have typically been worked out through imposing conditions on how companies operate, but Delrahim has said he is concerned those kinds of fixes require antitrust enforcers to become regulators to monitor compliance. He prefers asset sales to resolve those issues.

--With assistance from Simon Casey and Ed Hammond.

To contact the reporter on this story: David McLaughlin in Washington at [email protected]

To contact the editors responsible for this story: Sara Forden at [email protected]

Simon Casey

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