Namoi Cotton has told its shareholders to ignore the most recent share bid for the company made by its French-owned marketing partner, Louis Dreyfus Company.
To date, Louis Dreyfus has been outbid by Namoi's cotton ginning and marketing rival, Olam Agri Holdings, which offered to pay 70 cents a share if it gains more than 50 per cent shareholder support for its move.
The latest Olam offer on May 8 had swiftly followed Louis Dreyfus raising its previous bid to 67c in an attempt to outmanoeuvre one of Olam's two earlier takeover options for Australia's biggest ginning business.
The NSW-Queensland-based Namoi has told shareholders, based on an independent expert's report by financial services firm BDO, its independent board directors unanimously recommended shareholders reject the LDC offer mailed to them last week.
BDO Corporate Finance concluded the LDC offer was not fair and not reasonable in light of the three cent higher bid from Olam, the parent company of Queensland Cotton.
At the same time, however, Namoi's board has also urged shareholders bide their time and take no action on Olam's higher all-cash offer.
Directors were awaiting a fresh target statement from the Singaporean suitor and seek advice before making an official assessment.
Namoi's biggest shareholder, Samuel Terry Asset Management, which recently expanded its own stake in the business from 22pc to 25pc, has quickly swung its support behind Olam.
STAM was originally an eager supporter of Louis Dreyfus when LDC flagged plans for an indicative, non-binding offer at 51c late last year, formalising that bid in January after reviewing Namoi's accounts.
Until November, Namoi Cotton's shares were trading on the Australian Securities Exchange at 35c each - half the latest price being offered by Olam.
ASX price even higher
In the past fortnight Namoi's ASX share price has been as high as 77c, and this week was still trading above the Olam offer, at 71c, giving the company a market capitalisation of about $147 million
Louis Dreyfus is itself a major shareholder, with a 17pc stake, and has supported Namoi's journey from farmer-owned business to its full ASX-listing in 2017 and through the industry's drought battered seasons in 2018, 2019 and 2020.
It also took over running Namoi's lint marketing operations and cotton warehousing business as part of the Namoi Cotton Alliance and the Namoi Cotton Marketing Alliance joint ventures established in 2013 and 2021.
The latest setback for the Netherlands-headquartered global commodities giant followed concerns voiced by the Australian Competition and Consumer Commission about Louis Dreyfus' takeover ambitions.
The ACCC's assessment of the proposed acquisition was that it would be likely to substantially lessen competition in the supply of cotton lint classing services and cotton ginning services in the north of Western Australia and Northern Territory.
LDC already has its own gins at Emerald, Dalby and Moree, but at the centre of the ACCC's concerns were new cotton gins in Katherine in the Northern Territory and Kununurra, in West Australia's Ord irrigation area.
Namoi has been contracted to build and operate the Kununurra cotton gin and is a partner in the gin's parent, Kimberly Cotton Company.
LDC is a management partner in the WANT Cotton cotton gin at Katherine, which is now handling its first crop.
We are concerned it would result in LDC being able to reduce competition between these two cotton gins
- Stephen Ridgeway, Australian Competition and Consumer Commission
"If this acquisition proceeds, LDC will be involved in operating the only two cotton gins in the north of Western Australia and Northern Territory," said ACCC commissioner, Stephen Ridgeway.
"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 was also considering whether an acquisition could substantially lessen competition in the marketing of cotton lint and seed.
An ACCC report on Olam's bid is still to be released.
However, is expected to closely scrutinise similar competition concerns, given Olam's Queensland Cotton is Australia's second largest row cotton processor, also operating gins and marketing services in close proximity to Namoi sites in northern NSW and Queensland.
Andrew Marshall
Andrew Marshall is the group agribusiness writer for ACM's state agricultural weeklies and websites. He is a former editor at The Land and has worked in various Rural Press group roles in Canberra, North Richmond (NSW) and Toowoomba (Qld).
Andrew Marshall is the group agribusiness writer for ACM's state agricultural weeklies and websites. He is a former editor at The Land and has worked in various Rural Press group roles in Canberra, North Richmond (NSW) and Toowoomba (Qld).
