The Australian Competition and Consumer Commission will not oppose Wesfarmers proposed acquisition of IAMA but only after the parties provided significant undertakings, ACCC Chairman, Professor Allan Fels, said today.
The undertakings involve the sale of some rural merchandise outlets and the distribution of fertiliser in Western Australia.
Wesfarmers Dalgety is a fully owned subsidiary of Wesfarmers. IAMA and Wesfarmers Dalgety are two of the largest rural merchandise wholesalers and retailers in Australia.
In July this year, IAMA announced that it was holding discussions with Wesfarmers about a potential merger between IAMA and Wesfarmers Dalgety whereby Wesfarmers would become the major shareholder in IAMA. On 27 November 2000, IAMA and Wesfarmers announced their intention to merge the IAMA and Wesfarmers Dalgety businesses.
"The ACCC has undertaken extensive market inquiries into this proposed merger. The ACCC has consulted with rural merchandise suppliers, wholesalers and retailers as well as farming organisations.
"Based on information collected during market inquiries, the ACCC had concerns that the proposed merger would substantially lessen competition in several markets for farming inputs in Western Australia. The ACCC has accepted undertakings offered by the parties that overcome these concerns.
"A primary concern was with the distribution of fertiliser in Western Australia. CSBP is the dominant supplier of fertiliser to grain farmers in WA. CSBP along with Wesfarmers Dalgety is owned by Wesfarmers. CSBP is currently distributed through the Wesfarmers Dalgety, Elders and RTC rural merchandise retail networks.
"CSBP's main competitor in the market for fertiliser in WA is Summit Fertilisers. The primary distributor for Summit in WA is IAMA, which until recently, was also Summit's exclusive distributor.
"The ACCC had severe reservations about a allowing the situation to develop whereby Wesfarmers not only owned the dominant brand of fertiliser in CSBP, but also took majority ownership of IAMA, the primary distributor of CSBP's main competitor in Summit.
"The ACCC has accepted an undertaking from the parties that the new business in the next two years will take no steps to constrain the terms upon which the agents and affiliates of the new business will deal with fertiliser suppliers and will continue the existing distribution agreement between IAMA and Summit.
"The ACCC was also concerned by the high level of market concentration that a merged Wesfarmers Dalgety and IAMA would achieve in regard to herbicides and animal health and nutrition products and the possible ramifications this could have on competition for these products in Western Australia.
"Advances in biotechnology and genetic engineering is likely to increase the number of herbicide as well as animal health and nutrition proprietary products coming onto the market. The dominance that a merged Wesfarmers Dalgety and IAMA would enjoy in these product lines could provide the merged entity with sufficient leverage to negotiate sole distribution agreements with the suppliers of new proprietary products. Sole distribution arrangements could retard competition at the distribution level between rival rural merchandise networks and retailers and enable the merged entity to capture a significant profit margin.
"The ACCC's concerns in this regard have been addressed through an undertaking by the new business to sell one of the two rural merchandise outlets that the new business will have in Esperance, Katanning, Merredin, Narrogin, and Geraldton. The new business is required to sell in the first instance to another retailer of rural merchandise that will be unaffiliated to the new business. This undertaking will reduce the market concentration of the new business.
"After taking account of the undertakings offered by the parties, the ACCC believes that the proposed acquisition is unlikely to lead to a substantial lessening in competition".