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The potential takeover of Namoi Cotton Ltd (ASX:NAM) by Olam Agri Holdings has encountered another challenge, with the Australian Competition and Consumer Commission (ACCC) saying it could force the Singapore-based company to divest some assets before the deal can go ahead.
Two weeks ago, Olam Agri – through its subsidiary Olam Agri Australia Pty Ltd – raised its bid offer to $0.75 per Namoi share, up from an initial offer of $0.66, as it fends off competition from the Louis Dreyfus Company (LDC) for the acquisition of Namoi.
The two companies have been in competition for Namoi since May, with LDC’s offer currently sitting at $0.67 per share.
The ACCC has previously expressed concern about the Olam Agri offer, suggesting it could weaken competition in the supply of cotton ginning services in New South Wales’ Lower Namoi Valley, as well as the nationwide supply of cotton lint classing services.
The acquisition would result in Olam Agri operating four out of five cotton gins in the valley, and would hold interests in two companies – ProClass Pty Ltd and Australian Classing Services Pty Ltd – which are together responsible for more than 80 per cent of all cotton lint in Australia.
On this basis, the ACCC is seeking views on a court-enforceable undertaking requiring Olam to divest its Queensland Cotton gin at Wee Waa in New South Wales and its 20% share of ProClass Pty Ltd.
The regulator went through a similar process in relation to the LDC offer, expressing concern about this in May, before it was resolved through the company’s divestment of holdings related to cotton ginning and cotton lint classing service sectors.
ACCC chair Gina Cass-Gottlieb said such a step was necessary before the regulator could sign off on the Olam Agri acquisition.
“In assessing 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,” she said.
In addition to seeking these divestments, the ACCC is also scrutinising how such an acquisition might have a negative effect on coordination between companies in this sector in relation to cotton lint marketing, cotton warehousing and some regional ginning markets.
It has stated that ‘multiple linkages’ will be present between Olam and LDC following the former’s takeover of Namoi.
Several Namoi shareholders have thrown support behind the Olam Agri offer.
Namoi shares have fallen on the news, and at 12:24 AEST, they were trading at 69 cents – a fall of 3.50% since the market opened.
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