The ACCC has published a ‘Statement of Issues’ outlining preliminary competition concerns with Louis Dreyfus Company’s (LDC) proposed acquisition of Namoi Cotton Ltd (ASX: NAM).
In Australia, LDC and Namoi both supply cotton ginning, cotton lint classing, logistics and warehousing services. Both LDC and Namoi also engage in the acquisition and marketing of cotton lint and cottonseed.
The consumer watchdog is concerned that the proposed acquisition would be likely to substantially lessen competition in the supply of cotton ginning services in the north of Western Australia and Northern Territory and the supply of cotton lint classing services.
The ACCC is also considering whether the proposed acquisition may substantially lessen competition in the marketing of cotton lint and seed.
The ACCC’s concerns regarding the north of Western Australia and Northern Territory stem from the emergence of two new cotton gins in Katherine, NT and Kununurra, WA.
Namoi has been contracted to build and operate the Kununurra cotton gin and is a minority shareholder of this gin’s holding company. LDC has entered into a joint venture for the management and operation of the Katherine cotton gin, due to commence operations in mid-2024.
“If this acquisition proceeds, LDC will be involved in operating the only two cotton gins in the north of Western Australia and Northern Territory,” ACCC commissioner Stephen Ridgeway said. “We are concerned it would result in LDC being able to reduce competition between these two cotton gins, which may result in higher prices or reduced service levels for ginning services.
“Growers benefit from competition between cotton gins, and once both are operational, the Katherine gin will be by far the closest competitor to the Kununurra gin.”
The ACCC is also concerned that the proposed acquisition would be likely to substantially lessen competition in the supply of cotton lint classing services in Australia. ‘Classing’ occurs at the conclusion of the cotton ginning process when a sample is collected from each bale of cotton lint and sent for grading.
“The acquisition would result in LDC having ownership interests in two providers of cotton lint classing services, ProClass and Australian Classing Services, which together class more than 80 per cent of all cotton lint in Australia,” Ridgeway said.
LDC has since responded to the ACCC's concerns, saying it understand the watchdog's important role in protecting and promoting competition in Australia and that it is committed to fully cooperate with the ACCC.
“As a well-established player in the Australian market, with over 110 years of operations in the country and a strong balance sheet, LDC is committed to continued investment in ginning infrastructure to ensure a competitive and thriving industry," the company shared in a statement.
"Equally, Namoi Cotton’s extensive network of cotton gins and well-established industry relationships offer valuable synergies with LDC’s own operations in Australia.
"As such, we are confident that the acquisition of Namoi Cotton by LDC would support the long-term future and growth of the cotton industry in Australia, enhancing our service offering and creating added value for the grower community, wider agricultural sector and other stakeholders.”
The ACCC is also investigating the impact of the proposed acquisition on LDC’s ability and incentive to negatively impact rival merchants’ access to cotton lint, and its ability to limit access to or increase prices for warehousing services for the export of cotton out of the Port of Brisbane.
In addition to considering the concerns outlined in the Statement of Issues, the ACCC is also consulting on a divestment undertaking draft proposal, which has been put forward by LDC to address the ACCC’s competition concerns in the supply of cotton ginning services in the north of Western Australia and Northern Territory and the supply of cotton lint classing services.
The Statement of Issues and proposed divestment undertaking draft proposal can be found on the ACCC’s public register. The ACCC invites submissions in response to the Statement of Issues by May 30, 2024.