Tuesday, March 19, 2024

Seeds merger won’t stymie rivalry

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Commerce Commission clearance for the takeover of PGG Wrightson Seeds supports what it said from the start, DLF Seeds New Zealand general manager Tom Bruynel says.
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After initially questioning a potentially anti-competitive role a merged PGW Seeds and DLF Seeds business would have in the development of endophytes in the ryegrass market the commission has now concluded, following further submissions from DLF, the deal will not substantially lessen competition in any of the markets it assessed.

Bruynel welcomed the ruling, saying the commission had been very thorough in a complex situation.

“They’ve gone to a lot of trouble and have done a very good job in a good time frame.”

The Australian Competition and Consumer Commission has also said it will not oppose the deal, leaving Overseas Investment Office approval as the last major obstacle.

“We think we’ve had a very persuasive argument for them about what we bring to research and development and to market access, making it a much stronger business. Time will tell on that  and I can’t say much more till the deal is done,” he said.

DLF has not had any signal from OIO about when a decision will be made but hopes it might be by the end of this month or next month. 

“The sooner the better but we just have to bide our time.”

The ryegrass market was the major concern for the Commerce Commission, especially the development of endophytes, the fungus that grows with the grass to make it more pest-resilient.

Deputy chairwoman Sue Begg said “DLF is not at present a close competitor of PGW Seeds in respect of ryegrass seeds containing endophytes and is unlikely to be so in the future.

“Further, the merged entity would continue to be constrained by Barenbrug Agriseeds and a number of small companies.” 

Bruynel said the endophyte issue was just one of a lot of parts in the PGW Seeds business. 

“They are important for NZ and a bit in Australia but we see a lot of other value that we can take to other markets.”

DLF Seeds is a Danish co-operative and will provide access for PGW Seeds products into northern hemisphere markets. An example is the forage crop plantain, which DLF does not have. DLF will also bring resources to PGW Seeds to benefit NZ arable farmers, he said.

Wrightson deputy chairman Trevor Burt said Commerce Commission clearance is another positive strep as the transaction moves closer to settlement. 

He expects remaining conditions will be confirmed in due course with further announcements likely in the near future. As well as the OIO, change of control consents are required from some PGW Seeds joint-venture partners and from regulators in Uruguay, where PGW Seeds is active.

The final commission clearance differs quite markedly from its initial letter of issues report in early December.

It claimed the merger would bring together two of the three main endophyte research and development programmes in NZ that had produced endophytes able to be inoculated into commercial ryegrass varieties and that might affect current and future competition in the production of ryegrass seed. 

The commission noted PGW Seeds and Barenbrug dominate the NZ market but an analysis of the market might understate DLF Seeds importance and its place as a competitor to PGW Seeds might not be replicated by other, smaller competitors.

Asked to respond to that initial report, DLF Seeds submitted the commission was wrong to say the merger would bring together two of the three biggest endophyte programmes. 

It is not one of the big three and there are at least four market participants with commercial scale programmes. 

A DLF/PGW Seeds merger would still leave at least three programmes in place.

DLF Seeds also said the commission was being inconsistent with its findings when the two pre-PGW Seeds entities, Wrightson and Pyne Gould Guinness, merged in 2005.

Bruynel said some of the factors that had been raised with the commission by different parties had nothing to do with DLF Seeds and other aspects were old history.

“It took a while to work through that to get them to understand there were other good competitors that they were not aware of initially. It kept us busy for a couple of months.”

PGW Seeds’ parent company Wrightson will get about $431 million from selling the business. It has indicated the potential for a capital return of up to $292m to shareholders if the deal proceeds.

Wrightson shares jumped 7c to 55c on the NZX after the commission clearance was reported.

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