🗞️ACCC Investigates Potential Competition Impact of LDC’s Namoi Cotton Buyout

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The ACCC released a Statement of Issues outlining preliminary competition concerns with Louis Dreyfus Company's (LDC) proposed acquisition of Namoi Cotton Ltd (ASX: NAM). LDC and Namoi provide cotton ginning, lint classing, logistics, and warehousing in Australia. LDC and Namoi buy and sell cotton lint and seed.The ACCC worries that the proposed acquisition would reduce competition in cotton ginning and lint classing in northern Western Australia and the Northern Territory. The ACCC is also considering whether the acquisition will significantly reduce cotton lint and seed marketing competition. Two new cotton gins in Katherine, NT and Kununurra, WA have raised ACCC concerns about the north of Western Australia and Northern Territory. Namoi is a minority shareholder in the Kununurra cotton gin holding company and contracted to build and operate it. LDC has a joint venture to manage and operate the Katherine cotton gin, starting in mid-2024. “If this acquisition goes through, LDC will operate the only two cotton gins in northern Western Australia and the Northern Territory. We worry LDC could reduce competition between these two cotton gins, which could raise prices or lower service levels, said ACCC Commissioner Stephen Ridgeway. Farmers benefit from cotton gin competition, and once both are operational, Katherine will be the closest competitor to Kununurra. The ACCC also worries that the acquisition will reduce cotton lint classing competition in Australia. At the end of cotton ginning, a sample is taken from each bale of lint for grading. Mr. Ridgeway said the acquisition would give LDC ownership interests in ProClass and Australian Classing Services, which class more than 80% of Australian cotton lint.

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The ACCC is also investigating how the proposed acquisition will affect LDC's ability and incentive to negatively impact rival merchants' access to cotton lint and limit or increase prices for Port of Brisbane cotton export warehousing services. In addition to the Statement of Issues, the ACCC is consulting on LDC's divestment undertaking draft proposal to address competition concerns in the supply of cotton ginning services in the north of Western Australia and Northern Territory and cotton lint classing services. The ACCC's public register contains the Statement of Issues and divestment undertaking draft proposal: Dreyfus Asia Pte. Ltd.-Namoi Cotton. The ACCC requests Statement of Issues responses by 30 May 2024. Established in Singapore, LDC is part of the Louis Dreyfus Company Group. Cotton lint, cottonseed, grains, and oilseeds are originated, ginned, classified, stored, and traded in Australia. Emerald, Dalby, and Moree are LDC's cotton gins. Dalby, Brisbane, and Moree are its cotton warehousing and logistics hubs. ProClass, which classifies cotton lint, is 20% owned by LDC. It operates and manages the WANT cotton gin near Katherine in a joint venture with WANT Cotton. By mid-2024, this cotton gin should be operational. An ASX-listed company, Namoi provides ginning, cotton lint classing, cottonseed and lint marketing, warehousing, and logistics. Namoi has 10 cotton gins in NSW and QLD. For a cotton gin in the Gwydir Valley (NSW), it partners with the Wathagar Ginning Company. Namoi owns ~17% of the Kimberley Cotton Company, which will have a cotton gin in Kununurra, WA. Construction on this cotton gin will finish in July 2025. The Namoi Cotton Alliance (NCA) and NCMA are LDC's joint ventures with Namoi. The NCA warehouses and ships cotton lint bales. Warehouses are in Wee Waa, Warren, and Goondiwindi. Cotton lint is traded and sold by NCMA. The NCMA exclusively provides its services to Namoi and receives all cotton lint bales from Namoi.

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