Shares in Ruralco fell under the $4.40 a share cash offer price from Canadian-based rival, Nutrien after the competition regulator, the ACCC threw doubt on the $469 million bid.
Ruralco shares closed 3% to $4.15, well under the offer price and a sign of growing investor angst about the bid being impacted by the key regulator.
The bid – which has been recommended by the Ruralco board – will be done via a scheme of arrangement and needs the informal approval of the ACCC to proceed.
Based on the statement yesterday from the Commission, that looks unlikely to happen in its current form.
In a statement yesterday the Commission revealed it had competition concerns about their combined market dominance in some locations and in wholesale supply to independent farm merchandise stores.
The Commission pointed out that Nutrien was already the biggest player in the Australian farm services sector through its wholly-owned subsidiary, Landmark, and Ruralco is the third biggest after number two Elders.
“Nutrien operates in Australia through its wholly owned subsidiary, Landmark. Landmark and Ruralco supply rural merchandise such as fertiliser, fencing and animal health products, and other services through their branded retail store networks,” the Commission said in yesterday’s statement.
It pointed out that both companies also have wholesale businesses supplying rural merchandise to independent stores.
“A merged Landmark-Ruralco would be by far the largest retail and wholesale supplier of rural merchandise in Australia, with Elders the only other large national chain,” ACCC Deputy Chair Mick Keogh said.
“The combined entity would supply around 650 rural merchandise stores (including both corporate and member stores), which is approximately 45 percent of all rural merchandise stores nationally.”
“We are seeking submissions in response to our statement of issues, and will continue examining what impact the loss of a major national retail competitor might have on prices, product range (including private label brands) and other areas of competition,” Mr. Keogh said.
The ACCC said it had identified a number of local areas, including Broome (WA), Alice Springs (NT), Cooma (NSW) and Hughenden (Qld), where Landmark’s rural merchandise stores compete with Ruralco stores and there would be few remaining competitors.
The Commission said it is considering whether delivery from outside these regions would provide sufficient competition to the Ruralco-Landmark retail stores.
Ruralco is also a major wholesaler to independent rural merchandise stores through its CRT operation, and Landmark also has a smaller wholesale operation.
The ACCC said it is now “considering whether the proposed acquisition would reduce competition at the wholesale level, or whether the remaining wholesalers or buying groups (AIRR, NRI, and AgLink) will provide sufficient competition.
In addition, the ACCC is also examining whether a merged Landmark-Ruralco would be more likely to discriminate against retailers which are wholesale customers that compete with its retail stores.
The ACCC’s review has also considered overlaps between Landmark and Ruralco in the supply of wool broking, livestock agency and live export, insurance broking, financial services and real estate agency services.
The ACCC’s preliminary view is that the proposed deal is unlikely to substantially lessen competition in these areas.
The ACCC’s final decision is scheduled for August 15 this year.
In a statement to the ASX Ruralco said it “continues to engage with the ACCC in its review of the proposed transaction and is confident the issues raised can be addressed to the satisfaction of the ACCC.
“Ruralco continues to believe the Scheme will create a robust rural services provider, with significant benefits for farmers, businesses, and communities across regional and rural Australia.
“Informal clearance from the ACCC is a required condition for the Scheme to be implemented.
“Ruralco is currently considering the impact of the ACCC’s process on the transaction timetable and will provide a further update to the market as and when required,” the company said in its statement yesterday.