ACCC Consults on Olam's Proposed Divestiture Amid Namoi Cotton Acquisition
NAMOI COTTON LIMITED (NAM) Share Update September 2024 Thursday 26th
ACCC Reviews Olam's Proposed Divestiture Amid Namoi Cotton Acquisition
The Australian Competition and Consumer Commission (ACCC) is currently seeking public feedback on a proposed divestiture undertaking by Olam Agri Holdings Limited. This move is in response to competition concerns surrounding Olam's planned acquisition of Namoi Cotton Limited.
Instant Summary:
- Olam proposes to divest its Queensland Cotton gin at Wee Waa and its 20% share in ProClass Pty Ltd.
- ACCC raised concerns about reduced competition in cotton ginning and classing services.
- Olam and Namoi collectively operate a significant portion of Australia's cotton ginning and classing services.
- ACCC invites public submissions on the proposed undertaking by 11 October 2024.
Background on the Acquisition
Olam Agri Holdings Limited, along with its subsidiaries Olam Agri Australia Pty Ltd and Queensland Cotton Corporation Pty Ltd, has proposed to acquire Namoi Cotton Limited (ASX: NAM). Both companies are key players in the cotton industry, providing ginning, classing, logistics, and warehousing services.
If the acquisition proceeds without any changes, Olam would control four out of five cotton gins in the Lower Namoi Valley. Additionally, Olam would have stakes in ProClass Pty Ltd and Australian Classing Services Pty Ltd, which together handle over 80% of Australia's cotton lint classing.
ACCC's Concerns
On 20 June 2024, the ACCC published a Statement of Issues highlighting potential competition concerns. The primary worry was that the acquisition could substantially lessen competition in the supply of cotton ginning services in the Lower Namoi Valley and cotton lint classing services across Australia.
To address these concerns, Olam has proposed a court-enforceable undertaking. This would require Olam to divest its Queensland Cotton gin at Wee Waa and its 20% share in ProClass Pty Ltd. ACCC Chair Gina Cass-Gottlieb stated that the commission needs to be convinced that these measures will effectively address the competition issues.
Further Investigations
Despite the proposed divestitures, the ACCC continues to investigate the potential impact of the acquisition on the coordination of cotton lint marketing, warehousing, and regional ginning markets. The ACCC is particularly concerned about the multiple linkages between Olam and Louis Dreyfus Company (LDC), another major player in the cotton industry.
Both Olam and LDC are involved in the Namoi Cotton Alliance and the Namoi Cotton Marketing Alliance, in addition to holding stakes in Namoi itself. These connections could increase the likelihood of coordinated behavior, reducing competition further.
Public Consultation
The ACCC has decided to publicly consult on the proposed divestiture. However, Ms. Cass-Gottlieb emphasized that this should not be seen as an indication that the divestiture or any other remedy will be accepted. The ACCC invites public submissions on the proposed undertaking by 11 October 2024.
Company Backgrounds
Olam is a Singapore-listed company (SGX: OGL) with an integrated supply chain for cotton and pulse crops in Australia. Its cotton business is managed by its wholly-owned subsidiary, Queensland Cotton Corporation Pty Ltd, which operates six cotton gins across Queensland and New South Wales.
Namoi is an ASX-listed company engaged in ginning, cotton lint classing, cottonseed and cotton lint marketing, as well as warehousing and logistics services. Namoi operates ten cotton gins at nine sites across New South Wales and Queensland and has joint ventures with the Louis Dreyfus Company.
The proposed divestiture is a significant step by Olam to address competition concerns. If accepted, it could mitigate some of the ACCC's worries about reduced competition in the cotton industry. However, the ongoing investigation into potential coordination between Olam and LDC adds an element of uncertainty.
The divestiture could stabilize the market by ensuring that no single entity has excessive control over cotton ginning and classing services. This would likely be viewed positively by investors, as it reduces the risk of regulatory intervention.
Investor Reaction:
Analysts are likely to have mixed reactions to the news. On one hand, the proposed divestiture could be seen as a proactive measure to address regulatory concerns, which might reassure investors. On the other hand, the ongoing ACCC investigation into potential coordination issues could create uncertainty and affect investor sentiment.
Conclusion:
Investors should closely monitor the ACCC's final decision on the proposed divestiture and the outcome of the ongoing investigations. These developments will be crucial in determining the future competitive landscape of the cotton industry in Australia. Staying informed about these regulatory changes can help investors make more informed decisions.