Concerns Olam bid could see farmers paid less for their cotton

The competition watchdog has cast doubt over duelling foreign takeover bids for Australia’s largest cotton gin company. See the latest.

The ACCC has released a Statement of Issues outlining preliminary competition concerns about both takeover bids for Namoi Cotton.

The competition watchdog has flagged concerns with the proposed $145 million acquisition of Australia’s largest cotton gin company, the ASX-listed Namoi Cotton.

On Thursday, the ACCC published a Statement of Issues outlining preliminary competition concerns with Singapore-based agribusiness giant Olam Agri Holding’s proposed acquisition of Namoi Cotton.

Olam, through its wholly owned subsidiary, Queensland Cotton, and Namoi both supply cotton ginning, cotton lint classing, logistics and warehousing services in Australia. Both Olam and Namoi also engage in the acquisition and marketing of cotton lint and cottonseed.

In its report, the ACCC said it was concerned the proposed acquisition would be likely to substantially lessen competition in the supply of cotton ginning services in the Lower Namoi Valley in NSW, reducing the number of competing ginning suppliers in the region from three to two, with Olam operating four of the five cotton gins.

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

“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.”

Namoi Cotton has competing offers from Louis Dreyfus Company and Olam Agri.

The ACCC also raised concerns about the supply of cotton lint classing services and how this could affect what farmers get paid for their cotton crops.

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

“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,” Mr Ridgeway said.

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

Following the announcement Olam said the ACCC’s Statement of Issues was “not unexpected and represents a preliminary view by the ACCC of its review of the proposed acquisition”. “Olam Agri considers there are good reasons why the proposed acquisition will not substantially lessen competition and will continue to closely and constructively engage with ACCC in relation to its inquiries and to address its potential concerns,” they said.

“The ACCC has indicated that it anticipates making a final decision on 22 August 2024.”

Submissions in response to the Statement of Issues are invited by the ACCC by July 4, 2024.

The statement comes about a month after the ACCC also raised concerns about giant French agricultural merchant Louis Dreyfus Company’s (LDC) competing proposed acquisition of Namoi Cotton.

Olam currently holds the highest offer for Namoi at $0.70 a share, lodged on May 8 and endorsed by Samuel Terry Asset Management Pty Ltd, which holds a 25 per cent shareholding interest in Namoi.

On May 31, Namoi Cotton issued a target’s statement recommending shareholders accept Olam’s offer, barring a superior proposal.

Saudi Arabia’s Public Investment Fund owns 35 per cent of Olam Agri.