Part sell off will reduce trader's debt

The Australian Competition and Consumer Commission (ACCC) on Thursday decided not to oppose the proposed ownership changes and joint minority holdings across Glencore Agriculture's grain storage and handling and bulk rail transport operations in Australia.

It had no objection to a US$2.5b ($3.3b) acquisition by Canada Pension Plan Investment Board (CPPIB) of 40 per cent of Glencore Agriculture from its Swiss-based Glencore Plc parent company, headed by Ivan Glasenberg.

Nor did it oppose a US$624.9 million ($820.6m) acquisition by British Columbia Investment Management Corporation (BcIMC) of a 9.99pc share of Glencore Agriculture.

The proposed sales, first announced in April, would leave Glencore with a 50.1pc controlling interest in its agri-business but free of the US$3.6b ($4.7b) debt the agri-business has racked up and which the parent company is financing.

Through its subsidiary Viterra, purchased in 2012, and its wholly-owned Australian subsidiary Glencore Grain, Glencore Agriculture is the major grain accumulator in South Australia and western Victoria.

With a 10 million tonne-capacity upcountry grain storage and handling network and bulk grain port terminal services, it has a dominant market position in South Australia similar to that of CBH Group in WA.

A subsidiary of an American short-haul freight rail specialist, Adelaide-based Genesee & Wyoming Australia, carries most of Glencore's grain in South Australia.

It owns and operates about 5000 kilometres of track in South Australia and the Northern Territory, including 2200 kilometres from Kingoonya to Darwin, used by the iconic Ghan passenger train.

Genesee & Wyoming, along with competitor freight rail operators Pacific National and Aurizon, each lodged first-round bids in July for Glencore Plc's $1 billion GRail Hunter Valley coal train network.

In the recent $9 billion takeover and breakup of ports, logistics and rail operator Asciano by Brookfield Infrastructure Partners - owner of Brookfield Rail in WA, Qube and others - which the ACCC approved in July, CPPIB gained a 33pc interest and BcIMC a 12pc interest in Pacific National.

BcIMC, along with Brookfield, GIC and Qatar Investment Authority as a consortium, also gained Asciano's Patrick Bulk and Automotive Port Services business around Australia, including at North Fremantle.

Central to the ACCC's consideration was whether CPPIB and BcIMC's common interests in Glencore Agriculture and Pacific National would reduce the ability of rivals in rail or grain to compete.

"The ACCC conducted inquiries with customers, suppliers and competitors. Based on these, the ACCC is of the view that neither of the proposed acquisitions would be likely to substantially lessen competition in any market," said ACCC chairman Rod Sims.

"The ACCC does not consider that the acquisition gives Glencore Agriculture the incentive to use its position in the grain supply chain in South Australia to adversely affect Pacific National's rivals," Mr Sims said.

"The nature of the minority interests and the fact that Pacific National does not provide grain rail haulage services in South Australia were important considerations.

"Furthermore, the incumbent rail company, Genesee & Wyoming, is the dominant provider of grain rail haulage in South Australia and owns most of the relevant below-rail network.

"The ACCC also considered whether CPPIB and BcIMC could use their influence over Pacific National, which is the main provider of grain rail haulage in NSW and Victoria, to foreclose Glencore Agriculture's rivals.

"However, the nature of the minority interests involved, and the market position of other grain logistics providers and traders, such as GrainCorp, make it unlikely CPPIB and BcIMC would have the ability or the incentive to engage in such a strategy."

He said the ACCC considered whether cross-ownership interests would result in commercially sensitive information being shared between related entities to the detriment of competition.

"There are several constraints on the two proposed shareholders' abilities to share Glencore Agriculture's commercially sensitive information,'' Mr Sims said.

"Glencore Plc will retain majority ownership of Glencore Agriculture and has a commercial incentive to prevent such disclosure."

He noted the BcIMC proposed acquisition is conditional on completion of the CPPIB proposed acquisition, but not vice versa.

Although the ACCC reviewed both acquisitions simultaneously, it considered the competitive effects of each acquisition separately, Mr Sims said.

Glencore Agriculture operates in more than 30 countries and employs 12,000 people.

In Australia, through Glencore Grain, it operates in every State and accumulates, stores and trades wheat, barley, oilseeds, pulses, meals, and cotton.

CPPIB invests C$282.6 billion ($7.08b) on behalf of 19m contributors to the Canada Pension Plan.

In recent years it has spent more than $7.1 billion in Australia on real estate, infrastructure, public equities, real estate investment funds and direct investments.