Competition watchdog worries over USD$248 million sale of liquids terminals

Australia’s competition watchdog, the Australian Competition and Consumer Commission (ACCC), has expressed competition fears over the acquisition of the wharf-side GrainCorp Liquid Terminals by independent bulk liquid storage company ANZ Terminals. The ACCC has formed a preliminary view that the potential sale would “substantially lessen competition”… and that’s the first step on the way to blocking the A$350 million (US$248 million) deal.

ANZ Terminals and GrainCorp (ASX: GNC) both provide marine/wharf-side bulk liquid storage business around Australia. Bulk liquids include edible oils, tallow, non-flammable industrial liquids and base oils. A variety of services are provided by terminals including blending, bleaching, heating and waste disposal, among others.

However, the ACCC is worried that the deal will reduce competition on the eastern and southern coasts. ANZ Terminals would also acquire GrainCorp Liquid Terminals assets in Queensland, Tasmania and Western Australia, but there is less concern over these terminals as ANZ does not already facilities in those states.

“In some locations, the acquisition will lead to ANZ Terminals becoming the only storage provider for some liquid products. This loss of competition could result in higher prices for customers, or lower levels of service,” ACCC chairman Rod Sims said.

An ACCC analysis shows that there is considerable overlap in Australia in the storage of edible oils, tallow, non-flammable industrial chemicals, base oils and non-fuel petroleum products.

If the deal were to go ahead, there would be no alternative providers of such services at some ports. At other ports, there are additional suppliers of limited storage services but the local market generally does not consider them to be close competitors. Inland bulk liquid storage providers are also not considered as offering substitute port-side bulk liquids storage services. 

A further complicating factor is that each of the oils have their own handling requirements. For instance, a tank dedicated to storing tallow may not be able to store other types of edible oils.

The competition watchdog also believes that the containerized storage options, such as stainless steel pressure tanks in ocean-shipping container-like frames or liquid bladders are only used for the storage of smaller volumes of liquid. These alternative forms of storage do not provide an acceptable substitute, the ACCC says.

“Feedback from the market indicated that customers would need to change their shipping infrastructure and supply chains in order to accommodate alternative storage methods such as containerized storage. This includes changing the importing and exporting facilities in other countries, which are currently set up to receive or load liquids into ships in bulk. Therefore, customers can face additional costs and barriers to switching from bulk liquid storage to containerized liquid storage. While there may be some customers who can switch to alternative storage methods, including containerized storage, the ACCC understands that there are customers that require port-side bulk liquid storage that do not view containerized storage as a viable alternative,” the ACCC reports.

A further problem is that potential new entrants to this market are potentially locked out because vacant land at a port is needed to build new tanks. New port-sited tank farms require access to a berth so that the liquids can be pumped to/from a ship. So not all ports have suitable land for new tank farms.

Section 50 of the Competition and Consumer Act of 2010 forbids mergers and takeovers that would have the effect, or would be likely to have the effect, of substantially lessening competition in any market. And, based on its analysis to date, the ACCC has formed the preliminary view that the acquisition of GrainCorp’s bulk liquids business by ANZ Terminals is likely to substantially lessen competition.

The ACCC is carrying out further inquiries and consultations. Its final decision on whether or not to block the merger is due in mid-October this year. 

Seller GrainCorp issued a non-committal response upon publication of the ACCC’s statement of its worries.

“GrainCorp notes this statement presents a preliminary view and is not a final decision from the ACCC. The statement is a procedural step in the ACCC’s informal merger review process. The company has been, and will continue, to work closely with the ACCC to provide the information it requires as it works its way through the consideration of the transaction,” GrainCorp said.

GrainCorp is a grains-focused agribusiness with operations in Australia, New Zealand, North America and Europe (including the United Kingdom). Those operations collectively represent over 50 percent of global export trade in wheat, barley and canola, the company says.

GrainCorp bought what is now the bulk liquids terminals when it acquired two different businesses in 2012 for about A$302 million (US$222 million) in an attempt to buy vertical integration and scale in the local edible oils sector.  GrainCorp was also looking for synergies from the acquisition.

However, following a portfolio review – and a change in senior management personnel – the decision was made to dispose of the bulk liquids business. GrainCorp says that the liquid terminals business has “evolved substantially” and is “increasingly serving other sectors.”

GrainCorp’s liquids terminals business generated revenues of A$969 million in the 2018 financial results, an increase of 2.4 percent on the previous year. Earnings before interest, taxation and depreciation were up 5.2 percent, from A$50 million in FY2017 to A$61 million in fiscal year 2018.

ANZ Terminals has said that it wants to acquire the business so as to expand its footprint across the Australian bulk liquids market. ANZ Terminals operates 427,000 cubic metres of storage at seven terminals in Australia and four terminals in New Zealand. It offers storage and handling for chemicals, petroleum, vegetable and edible oils, base oils and bitumen. It also provides ship loading and discharge services.

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