ACCC consults on Olam divesture after Namoi takeover concerns
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The news: The competition regulator is seeking views on a proposed court-enforceable divestiture undertaking offer by Singapore-based Olam Agri in relation to its takeover bid for ASX-listed cotton ginner Namoi Cotton.
The numbers: If the acquisition proceeds, Olam would operate four of the five cotton gins in the Lower Namoi Valley in New South Wales. It would also have interested in both ProClass and Australian Classing Services, which together class more than 80% of all cotton lint in Australia.
The context: In June, the Australian Competition and Consumer Commission (ACCC) raised a number of preliminary competition concerns, including that the proposed acquisition was likely to "substantially lesson competition" in the supply of cotton ginning services in the Lower Namoi Valley and the supply of cotton lint classing services nationwide.
In response to those concerns, Olam has offered a court-enforceable undertaking that would require Olam to divest its Queensland Cotton gin at Wee Waa in New South Wales and its 20% share of ProClass.
Separate to the proposed divestments, the ACCC said it is continuing to closely investigate the proposed acquisition on the increased risk of coordination in cotton lint marketing, cotton warehousing and some regional ginning markets.
The regulator remains concerns that following the proposed acquisition, there will be multiple linkages between Olam and rival suitor Louis Dreyfus Company (LDC), another cotton ginner and merchant.
This includes Olam and LDC's joint involvement in the Namoi Cotton Alliance and the Namoi Cotton Marketing Alliance, in addition to the companies' common holding in Namoi itself.
The ACCC said it is concerned that these linkages may increase the likelihood of tacit or explicit coordination and continues to evaluate the risk and potential impact of less vigorous competition between the two suppliers post-acquisition.
Earlier this month, Namoi's independent directors endorsed Olam’s latest takeover bid, which was also backed by two of the company's major shareholders Samuel Terry Asset Management and Harvest Lane Asset Management.
What they said: "In addressing Olam's proposed undertaking, we will need to be satisfied that it will effectively address our competition concerns in the supply of cotton ginning services in the Lower Namoi Valley in New South Wales and the supply of cotton lint classing services Australia-wide, as well as being structured in a way that is practical and effective," ACCC chair Gina Cass-Gottlieb said.
"We are still considering the proposed acquisition, including important coordination concerns which are not addressed by this proposed undertaking.
"While we have decided to publicly consult on the proposed divestiture, this should not be interpreted to mean that this or any other form of remedy will ultimately be accepted."
The source: ASX announcement
