Antitrust Law Daily Wrap Up, ANTITRUST NEWS: Australian competition agency will not oppose ADM’s acquisition of GrainCorp, (Jun 28, 2013)

By Tobias J. Gillett, J.D., LL.M.

The Australian Competition and Consumer Commission (ACCC) will not challenge Archer Daniels Midland Company (ADM)’s proposed acquisition of GrainCorp Limited, the agency has announced.

Following a public review process that included consultations with grain growers, industry bodies, and competitors, the ACCC concluded that the transaction would not lessen competition in any market and would not foreclose the access of any third parties to the grain storage and supply chain.

“The ACCC concluded that the proposed acquisition would be unlikely to substantially lessen competition as the merged entity would continue to face competition from a number of sources,” said ACCC Chairman Rod Sims. “Following a careful analysis the ACCC concluded that it is unlikely that the incentives faced by ADM in regard to the storage and transport supply chain would be materially altered by the acquisition.”

Currently, GrainCorp principally competes with ADM in the market for grain trading and marketing in Victoria, New South Wales, and Queensland, where ADM owns 80% of GrainCorp competitor Toepfer. Competitors of the merged entity would collectively account for the majority of grain traded in that market, and therefore ADM would continue to be constrained, according to the ACCC.

The review also concluded that the transaction would not affect the provision of storage and port services. GrainCorp has storage and port services interests on the east coast of Australia, but ADM does not have any storage and handling interests in those areas, and has only a “small and indirect interest” in the Queensland Bulk Terminal port. Therefore, ADM and GrainCorp only minimally compete in the storage and port services market, according to the agency.

The ACCC focused on the need to ensure access to “bottleneck infrastructure,” particularly with respect to access to bulk wheat port terminal services, for which the ACCC currently administers access undertakings.

“These arrangements have been very important in promoting a competitive bulk wheat export industry, and in allowing Australian grown wheat to be sold to a variety of international markets and buyers,” Sims said. “In an environment where regulation may be moving to the use of a mandatory code, it will be important that policy makers ensure the regulatory settings are appropriate to ensure the right market outcomes in bulk wheat export, and that access to important bottleneck infrastructure continues to be effective.”

ADM and GrainCorp announced in April 2013 that they had entered into a conditional takeover implementation deed under which ADM would acquire all outstanding shares not already owned by ADM for a price of AU $12.20 per share, for an aggregate transaction value of about AU $3.4 billion. The transaction value reflected the weighted average cost of acquiring the initial 19.8 percent stake in GrainCorp at an average of AU $11.24 per share, and the remaining shares of GrainCorp at AU $12.20 per share. GrainCorp would also pay dividends of AU $1.00 per share to its shareholders prior to the closing of the transaction, with potential additional dividends if regulatory conditions are not achieved by October 1, 2013, and if GrainCorp is profitable during that period. ADM announced it had completed confirmatory due diligence in May 2013, and would make the bid as set forth in the implementation deed.

Companies: Archer Daniels Midland Company; GrainCorp Limited

News: Antitrust