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Australia's competition watchdog, the Australian Competition and Consumer Commission (ACCC), has voiced apprehensions regarding Singapore-based Olam Agri's proposed acquisition of Namoi Cotton (ASX: NAM) for AU$144.9 million (US$96.7 million). The regulator expressed concerns over potential anti-competitive effects in the supply of cotton ginning services, a critical segment for Australia's cotton industry.
Following the announcement, Namoi Cotton's shares plummeted by as much as 7% to AU$0.645 in afternoon trade on Thursday. In contrast, the broader S&P/ASX 200 index (AXJO) remained relatively flat, underscoring the specific impact of the acquisition news on Namoi's stock.
Olam Agri, a subsidiary of Singapore's Olam Group (OLAG.SI), and Dutch commodity merchant Louis Dreyfus Company have been engaged in a competitive bidding process to gain control over Namoi Cotton. The acquisition aims to bolster their presence in Australia and expand their operations in the cotton industry.
"The proposed acquisition would reduce the number of competing ginning suppliers in the Lower Namoi Valley from three to two, with Olam operating four of the five cotton gins if the acquisition proceeds," explained ACCC Commissioner Stephen Ridgeway in a statement. This consolidation raises concerns about diminished competition in a critical agricultural service sector.
According to the ACCC, the reduction in competitive ginning suppliers could potentially lead to higher costs for local cotton growers in the Lower Namoi Valley region. Furthermore, the regulator highlighted potential disruptions in the supply of cotton lint classing services across Australia, adding to the regulatory scrutiny surrounding the acquisition.
If the acquisition receives approval and proceeds as planned, only one alternative cotton gin operated by Australian Food and Fibre would remain in the Lower Namoi Valley. This consolidation could significantly impact market dynamics and pricing structures in the local cotton industry.
Both Olam and Namoi Cotton have yet to respond to requests for comment from Reuters regarding the ACCC's concerns and the regulatory implications of the acquisition.
The ACCC's review of the proposed acquisition underscores its commitment to safeguarding competitive markets and ensuring fair practices within Australia's agricultural sectors. The outcome of the regulatory scrutiny will be closely monitored by industry stakeholders and investors alike, as it could potentially reshape the landscape of cotton ginning and related services in the country.
