![The Australian Competition and Consumer Commission has concerns about the takeover ambitions of both Olam Agri (Queensland Cotton) and Louis Dreyfus Company. File photo. The Australian Competition and Consumer Commission has concerns about the takeover ambitions of both Olam Agri (Queensland Cotton) and Louis Dreyfus Company. File photo.](/images/transform/v1/crop/frm/32XghFRykTWK8psrWNhdBMC/aac09805-ce32-4f26-aa40-9dd00032d8db.JPG/r0_88_4906_2968_w1200_h678_fmax.jpg)
The competition regulator has added more fuel to its concerns about the takeover action at Namoi Cotton, now identifying Olam Agri's $144 million bid for the big ginner as potentially problematic.
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Last month the Australian Competition and Consumer Commission flagged concerns about a takeover by Namoi's other suitor, the European commodities giant, Louis Dreyfus Company.
It said the proposed LDC acquisition would be likely to substantially lessen competition in the supply of cotton lint classing services and cotton ginning services in northern Australia.
Now it has also noted a successful Olam bid could reduce competition for cotton ginning services and lint classing services, while also flagging it was investigating potential implications to cotton marketing costs and Sydney and Brisbane port warehouse storage expenses.
Share price slide
The ACCC's preliminary view knocked the froth off Namoi Cotton's share price which sank below 65 cents after the report was released.
Namoi stock has been worth as much as 76c on the Australian Securities Exchange in the past month as the two big farm commodity rivals tried to out-manoeuvre each other.
Singapore-based Olam Agri Holdings, which is, so far, winning the bidding price war with an offer of 70c a share, already owns Namoi's major competitor, Queensland Cotton.
Like Namoi, QC has operations in Queensland and NSW, which the ACCC noted included the supply of cotton ginning, cotton lint classing, logistics and warehousing services, and both were also involved in marketing cotton and cottonseed.
It said an Olam or QC takeover would likely substantially lessen competition for the supply of ginning services in NSW's lower Namoi Valley, as well as for the supply of cotton lint-classing and warehousing services.
Merging Namoi and QC's operations would leave just one alternative cotton ginner in the lower Namoi Valley, the former Auscott site at Narrabri, now owned by the Canadian-backed Australian Food and Fibre.
Olam would operate QC's Wee Waa gin and Namoi Cotton's Merah North, Moomin and Boggabri gins.
![If Olam Agri's Namoi Cotton takeover goes ahead Queensland Cotton could operate gins at Wee Waa, Merah North, Moomin and Boggabri in the Namoi Valley. File photo. If Olam Agri's Namoi Cotton takeover goes ahead Queensland Cotton could operate gins at Wee Waa, Merah North, Moomin and Boggabri in the Namoi Valley. File photo.](/images/transform/v1/crop/frm/32XghFRykTWK8psrWNhdBMC/9623b2b9-6ad0-4659-9d9e-6c0a9e7aabf0.JPG/r0_252_4928_3023_w1200_h678_fmax.jpg)
"The proposed acquisition would reduce the number of competing ginning suppliers in the lower Namoi from three to two," said ACCC commissioner, Stephen Ridgeway.
"Olam may be able to significantly reduce competition for cotton ginning services, resulting in higher prices for growers who are unlikely to transport their cotton to gins outside of the lower Namoi Valley due to transport costs."
The next closest competitor would be AFF's Moree gin at least 100 kilometres from the Narrabri-Wee Waa-Boggabri area.
ACCC concerns about competition for cotton lint classing services revolved around Olam already having ownership interests in ProClass and taking over Namoi's Australian Classing Services.
Together the two businesses classify more than 80 per cent of the Australian crop.
Classing occurs after the cotton ginning process when a sample is collected from each bale of cotton lint and sent for grading.
The ACCC was also concerned an Olam takeover could negatively impact competing cotton merchants from acquiring and marketing cotton lint and cottonseed, given its increased ginning presence in certain cotton regions.
If competing merchants struggle to compete against Olam, the proposed acquisition may result in growers being paid less for their cotton.
- Stephen Ridgeway, ACCC
"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."
The ACCC was also investigating the impact of the proposed merger on competition for marketing and cotton warehousing services.
Namoi's marketing service is a joint venture with Louis Dreyfus, which is also currently the cotton company's second biggest shareholder.
The competition watchdog said there was a risk of the merger allowing co-ordination in cotton lint marketing because of Olam's and Louis Dreyfus Company's subsequent common involvement in the Namoi Cotton Alliance and Namoi Cotton Marketing Alliance.
Also being examined was whether the acquisition would enable Olam to increase prices for warehousing services for the export of cotton out of Brisbane or Sydney.
Olam responded to the ACCC's preliminary report saying it would continue to constructively engage with the regulator about its potential concerns.
Olam Agri strongly believes the combination of Namoi and Olam Agri will unlock new opportunities for both businesses as well as Australian cotton growers
- Ashish Govil, Olam Agri
However it considered there were good reasons why a Namoi-QC merger would not substantially lessen competition.
"Olam Agri strongly believes the combination of Namoi and Olam Agri will unlock new opportunities for both businesses as well as Australian cotton growers," company director Ashish Bovil, said in a statement to shareholders.
"Namoi with its stakeholders will stand to benefit from Olam's expertise, extensive customer franchise and track record of driving growth as demonstrated by the success of Queensland Cotton."
Olam is yet to crank up its share buying campaign, despite pitching a three cent premium to shareholders in its off-market takeover offer.
It currently holds just 4.6pc of Namoi's shares, while LDC, despite offering less money, gained a further 1pc, or almost 2m shares, between May 27 and June 14.
LDC now holds a solid takeover blocking stake of just over 19pc of Namoi's stock.
The ACCC is expected to make its final decision on Olam's acquisition on August 22.