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- The Federal Court has approved a $469 million buyout of ASX-listed Ruralco by Canada-based agriculture giant Nutrien
- The merger was proposed in February but slowed down by consumer watchdog competition concerns
- Nutrien had to relieve stores in three different states before the ACCC allowed the merger to go ahead
- Ruralco shares remained steady throughout the ACCC investigations, and trade for $4.40 each at 1:37 pm AEST today — the same price as the buyout
It’s been a big day of company buyouts, with the Federal Court approving the $469 million takeover of Ruralco by Canada-based agriculture giant Nutrien.
This approval comes the same day as Wesfarmers was given the green light from the Court for a $776 million purchase of lithium explorer Kidman Resources.
Ruralco said in an announcement to the ASX today it expects to lodge a copy of the Court approval with the Australian Securities and Investments Commission tomorrow. Once lodged, the takeover will become legally effective and Ruralco shares will be suspended from trading at market close.
Nutrien offered to buy Ruralco at the end of February 2019 for $4.40 per share — valuing the company at $469 million. At the time, Ruralco shares were worth just over $3 each.
As such, Nutrien’s offer represented a 44 per cent premium to the one-month volume weighted average price of Ruralco securities, and Ruralco’s directors were quick to recommend shareholders give the takeover a thumbs up.
However, Ruralco’s eagerness was met with resistance in the form of consumer watchdog concerns.
The concerns
Though Nutrien is based in North America, it operates in Australia through its subsidiary, Landmark. Further to this, Landmark and Ruralco operate in the same sector — both supplying rural merchandise like fertiliser, fencing, and animal health products through retail store networks.
As such, the Australian Competition and Consumer Commission (ACCC) expressed concerns in June that a merger between these two major companies would subdue the competition.
“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 at the time.
“The combined entity would supply around 650 rural merchandise stores (including both corporate and member stores), which is approximately 45 per cent of all rural merchandise stores nationally.”
Areas of concern included Broome, Alice Springs, Cooma, and Hughenden, where the ACCC realised Landmark and Ruralco were key competitors. As such, the merger would mean there would be few remaining competitors in left in these areas.
However, it was not all over for the potential merger; the ACCC was happy to give the buyout the go-ahead so long as the companies involved adhered to competition-encouraging conditions.
The conditions
After some investigation, the ACCC came to the conclusion that there were three primary regions of concern. Subsequently, Nutrien was required to divest three rural merchandise stores in Broome, Alice Spings, and Hughenden to a purchaser approved by the consumer watchdog.
Nutrien was happy to oblige, and in August the ACCC announced it had approved the merger.
“Ultimately, we decided that the transaction was not likely to substantially lessen competition, as rival rural merchandise retailers and wholesalers will continue to provide strong competition,” Mick said in a media statement.
He said the Commission realised the independent sector in rural merchandise is strong enough to ensure competition will remain healthy, even with the combining of Landmark and Ruralco.
“While we had competition concerns in Broome, Alice Springs and Hughenden, these were resolved by the commitment to divest sites in those locations,” he said.
The ACCC concluded that though Nutrien will be in a strong position in the market, suppliers will generally have other channels through which to distribute their goods, and any increase in buyer power is not likely to be substantial.
Now that clearance had been given from the ACCC, all that stood in the way of the merger was approval from the Foreign Investment Review Board (FIRB) and Ruralco shareholders.
Less than two weeks after the ACCC approval, both the FIRB and shareholders expressed their support of the merger, marking a moment of relief for Ruralco as the deal could finally go ahead.
Ruralco shares remained steady throughout the ACCC investigations, and trade for $4.40 each at 1:37 pm AEST today — the same price as the buyout.
