ACCC raises concerns over Olam’s offer for Namoi

Grain Central June 20, 2024

THE Australian Competition and Consumer Commission has raised concerns over Olam Agri’s proposed acquisition of Namoi Cotton, claiming it would likely reduce competition in ginning services in the Lower Namoi Valley and lint-classing services.

The findings were the result of a preliminary review commenced by Australia’s competition watchdog on April 12.

Olam Agri is the frontrunner to acquire Namoi after the company’s independent directors advised shareholders to accept the latest takeover offer earlier this month.

The board had previously rejected an offer from competing bidder Louis Dreyfus Company.

ACCC commissioner Stephen Ridgeway said the acquisition would immediately reduce ginning service competition for growers in the Lower Namoi Valley of northern New South Wales.

Olam Agri, through its wholly owned subsidiary, Queensland Cotton, supplies lint classing, logistics and warehousing services in NSW and Qld.

In the Lower Namoi Valley, Olam operates the Wee Waa gin, while Namoi owns the Merah North, Moomin and Boggabri gins.

“The proposed acquisition would reduce the number of competing ginning suppliers in the Lower Namoi Valley from three to two, with Olam operating four of the five cotton gins if the acquisition proceeds,” Mr Ridgeway said.

“Post-acquisition, there would only be one alternative cotton gin in the Lower Namoi Valley region operated by Australian Food and Fibre.

“Olam may be able to significantly reduce competition for cotton-ginning services, resulting in higher prices for cotton growers in the Lower Namoi Valley who are unlikely to transport their cotton to gins outside of the Lower Namoi Valley due to transport costs.”

Mr Ridgeway said the ACCC had similar concerns about the impact on the supply of lint classing services in Australia.

He said Olam Agri has a 20-percent interest in classing service provider ProClass, while Namoi operates a comparable business, Australian Classing Services.

“The acquisition would result in Olam having ownership interests in both ProClass and Australian Classing Services, which together class more than 80pc of all cotton lint in Australia.

Marketing competition concerns

The ACCC also raised issues that the proposed acquisition would provide Olam with the ability to negatively impact competing cotton merchants from acquiring and marketing lint and cottonseed.

Mr Ridgeway said this may occur due to Olam’s increased ginning presence in certain cotton regions of Australia, including the Lower Namoi Valley.

“This acquisition may give Olam the ability to tie cotton lint and cottonseed purchasing contracts to cotton-ginning contracts, as well as limit competing merchants’ access to cotton lint and cottonseed from Olam’s gins.

“If competing merchants struggle to compete against Olam, the proposed acquisition may result in growers being paid less for their cotton.”

The ACCC is also investigating the impact of the proposed acquisition on competition for the supply of lint marketing and warehousing services, and the risk of coordination in lint marketing through Olam and LDC’s common involvement in the Namoi Cotton Alliance and Namoi Cotton Marketing Alliance.

It also raised issues regarding the potential for Olam to have increased visibility over contracts for the acquisition and marketing of lint.

The ACCC was concerned that this data would give an unfair advantage to Olam, as it would be able to readily identify, target and sell its merchant services to uncontracted growers.

A further issue being examined is whether the acquisition would enable Olam to increase prices for warehousing services for the export of cotton out of the Port of Brisbane or ports in Sydney.

The ACCC invites submissions in response to the Statement of Issues by July 4 with a final view expected by August 22.

The competition watchdog raised similar concerns surrounding LDC’s proposed acquisition of Namoi.

In a Statement of Issues released in May, the ACCC said the sale would likely substantially lessen competition in the supply of cotton ginning services in the north of Western Australia and Northern Territory and the supply of cotton lint classing services.

In reply, LDC offered to exit its interests in ProClass and terminate its joint venture investment in NT gin operation, WANT Cotton.

The ACCC was expected to release its final view on July 11, but has indicated that the process have been delayed as it requires further information from the parties.

It will announce a proposed decision date in due course.

Source: ACCC


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