COMMODITY giant Louis Dreyfus’s bid for Namoi Cotton can proceed following the ACCC’s acceptance of a court-enforceable divestiture undertaking.
The Louis Dreyfus Company B.V. and its subsidiaries (together, the LDC Group) will divest its shares in ProClass Pty Ltd, and terminate its joint venture with WANT Cotton Pty Ltd.
In mid-May the ACCC published its concerns about a possible lessening of competition in the Northern Territory and the north of Western Australia, on the basis that the LDC Group and Namoi both supply cotton ginning, cotton lint classing, logistics and warehousing services. Both companies also engage in the acquisition and marketing of cotton lint and cottonseed.
(A month later the Commission expressed similar doubts about the rival bid for Namoi from Singapore’s Olam)
The LDC Group owns 20% of ProClass, and Namoi owns 100% of Australian Classing Services (ACS), both of which supply cotton lint classing services. The LDC Group also has a joint venture with WANT Cotton for the operation and management of a cotton gin near Katherine, Northern Territory.
“Without terminating its joint venture with WANT Cotton, the LDC Group would have operated the only two cotton gins in the north of WA and the NT,” ACCC deputy chair Mick Keogh said.
The ACCC was also concerned that the proposed acquisition would be likely to substantially lessen competition in the supply of cotton lint classing services in Australia.
The divestment of ProClass shares addresses this concern, by ensuring that the LDC Group does not have interests in both ProClass and ACS, which together class more than 80% of all cotton lint in Australia, the Commission said today.
“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.
