The Elders Ltd (ASX: ELD) share price has edged lower this morning despite the ACCC announcing that it will not oppose its proposed acquisition of rural wholesale buying group Australian Independent Rural Retailers (AIRR).
At the time of writing the agribusiness company's shares are down 0.5% to $6.76.
What happened?
In July Elders announced its intention to acquire AIRR by way of a scheme of arrangement for $10.851 per share. This consideration comprises 50% cash and 50% Elders scrip and valued AIRR at $157 million on an equity value basis and $187 million on an enterprise value basis.
There had been concerns that the acquisition could lessen competition in certain areas of the market, but this has been dismissed by the competition regulator.
ACCC Deputy Chair, Mick Keogh, said: "The ACCC examined the proposed transaction closely, because it could give rise to vertical integration concerns. In particular, the ACCC assessed the risk that independent stores would be discriminated against by Elders in a way that harms competition."
"We tested these vertical issues closely with industry participants and independent retailers. Market feedback suggested that most independent retailers consider they have sufficient alternative supply options if Elders attempted to discriminate against them. It also appears that existing or potential new buying groups or wholesalers could expand in response to any future change in AIRR's offering," Mr Keogh added.
The ACCC also considered whether the transaction could result in reduced competition in towns where Elders and independent stores supplied by AIRR are in close proximity to each other, but found that the "vast majority of locations impacted have other stores competing with Elders and the AIRR-supplied stores." As a result, it believes this will "prevent a softening of competition."
What now?
Elders will no doubt be pleased with the news as the acquisition provides it with an entry into the wholesale rural services market, enabling a new growth channel. In addition to this, management believes the deal has the potential to deliver net synergies of $6.6 million to $9.33 million per annum, which will be gradually realised over the next two years.
And finally, the acquisition is expected to deliver low single digit EPS accretion on an FY 2019 pro forma basis before synergies and low double digit EPS accretion post synergies.
