THE ACCC has backflipped on its initial stance on Louis Dreyfus Company’s offer to acquire Namoi Cotton, now opting not to oppose the transaction if the global ginner exits it investment in Northern Territory and classing operations.

On May 16, the Australian Competition and Consumer Commission published a statement of issues outlining preliminary competition concerns in relation to the proposed acquisition.

It highlighted concerns that that the proposed acquisition would be likely to substantially lessen competition in the supply of cotton ginning services in the north of Western Australia and in the NT and the supply of lint classing services.

The LDC Group owns 20 percent of ProClass, while Namoi owns 100pc of Australian Classing Services (ACS), both leading suppliers of classing services to the Australian cotton industry.

The LDC Group also has a joint venture with WANT Cotton for the operation and management of a cotton gin near Katherine, NT, while Namoi has a 17pc interest in the Kimberley Cotton Company, which will operate a cotton gin in Kununurra, WA.

“Without terminating its joint venture with WANT Cotton, the LDC Group would have operated the only two cotton gins in the north of Western Australia and the Northern Territory,” ACCC deputy chair Mick Keogh said.

“Without the divestiture, there was a risk that ProClass and ACS would not compete with each other effectively, given the LDC Group’s respective part ownership and full ownership of these businesses,” Mr Keogh said.

“This could have resulted in increased cotton classing prices or a reduction in the quality of classing services in Australia.”

The ACCC also considered the impact of the proposed acquisition on the LDC Group’s ability and incentive to restrict rival merchants’ access to cotton lint.

As the proposed undertaking addresses the overlap in cotton ginning services, the ACCC has concluded that the LDC Group would not have sufficient market power to restrict or negatively impact rival merchants’ access to cotton lint.

The ACCC also found that the LDC Group would not be able to limit access to or increase prices for warehousing services for the export of cotton out of the Port of Brisbane.

Rival merchants would still be able to access warehousing services from other competitors, and barriers to entry for rival merchants to establish their own warehousing facilities instead of contracting with a third party are relatively low.

The ACCC is currently completing a public competition assessment on the proposed sale which will be released in due course.

Namoi engaging with ACCC

In his address to shareholders during the annual general meeting this week, Namoi executive chairman Tim Watson said the company was “engaging with the ACCC” during its investigation of the LDC and competing Olam proposal.

“The Board will continue to keep shareholders and the market informed of material developments associated with the takeover offers,” Mr Watson said in a statement released to the ASX.

“The independent directors believe this is the right time for Namoi Cotton to be part of an international company that has scale and access to capital.

“Both LDC and Olam would bring capability that will complement our business in two ways.

“Firstly, diversification to manage variable cotton volume, which could be negatively impacted by government water policies in the short term and the changing climate in the long term.

“Secondly, scale to maintain and continue to invest in upgrading, and continuous improvement of, our ginning network, which is being negatively impacted by increasing input costs and in particular energy charges.”

Olam considers options

The ACCC is expected to release a final decision on Olam Agri’s proposal on August 22.

On June 20, the ACCC announced that it had initial concerns with the possible merger and claimed it would likely reduce competition in ginning services in the Lower Namoi Valley and lint-classing services.

Olam Agri, through its wholly owned subsidiary, Queensland Cotton, operates the Wee Waa gin in the Lower Namoi, while Namoi runs three gins in the valley:  Merah North, Moomin and Boggabri.

The ACCC said if the acquisition goes ahead, Australian Food and Fibre would be the only alternative operator in the Lower Namoi Valley.

In a statement released to the ASX today, Olam Agri said it was working with the ACCC to address its concerns.

“Olam Agri continues to consider there are good reasons why its proposed acquisition of Namoi will not substantially lessen competition,” the statement said.

“Olam Agri continues to closely and constructively engage with the ACCC in relation to its inquiries and to address the ACCC’s potential concerns, including by Olam Agri proposing potential divestments.

“Olam Agri encourages Namoi shareholders to not accept the offer from Louis Dreyfus Company Melbourne Holdings Pty Ltd in advance of the ACCC making its final decision in relation to Olam Agri.”

Source: ACCC, Namoi, Olam