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ComCom wary of Wrightson seeds sale to DLF

By Paul McBeth

Dec. 3 (BusinessDesk) - PGG Wrightson's $434 million sale of its seeds business to Danish cooperative DLF Seeds has hit a hurdle with the Commerce Commission uneasy about the potential concentration of power in the ryegrass seeds market.

The antitrust regulator has issued a letter of issues outlining its concerns about the proposed deal. At this stage it's not satisfied the transaction wouldn't let DLF raise prices or reduce the quality to customers by taking out a competitor in the production and supply of ryegrass seeds. The letter isn't the final say and the regulator wants submissions from interested parties this month. A decision is due by Feb. 14.

The commission said the analysis of current market shares probably understates the importance of DLF's research and development programme, which has successfully developed novel ryegrass endophytes and high-performing ryegrass cultivars specifically for New Zealand conditions.

"Our preliminary view is that DLF is a close competitor to PGW Seeds in the market for the production and supply of ryegrass and is generating competitive tension which may not be replicated by other competitors that have relatively small market shares," Commerce Commission senior investigator Andy Gallagher said in the letter.

Because it takes 10 to 15 years to get a product ready for commercial release, the regulator said it was unlikely a new entrant could constrain the enlarged entity.

The commission said it's also assessing whether imported turf seeds are a viable competitor to the combined business.

DLF cited its research capability as making it a strong potential suitor of the New Zealand firm in its application for clearance of the deal. It said that scientific focus made it a better buyer than rival bidders because it was in a stronger position to take advantage of opportunities in genomic selection and endophyte technology.

Wrightson shareholders overwhelmingly backed the sale of the seeds division, of which $292 million is set to be returned to investors through a share buyback if it goes ahead.

The deal was judged fair to minority shareholders, although the New Zealand Shareholders' Association opposed it saying the short-term gain for investors was offset by the remaining business being half the size of, and inferior to, the seeds unit.

Wrightson has retained First NZ Capital to review options for the remaining businesses, capital requirements and shareholding structure.

The firm's cornerstone shareholder Agria Corp owns 50.2 percent of the rural services firm. That stake became problematic when the Overseas Investment Office said it was reviewing the company's 'good character' status due to an ongoing probe by the US Securities and Exchange Commission over the accuracy of disclosures and accusations of share price manipulation.

Agria's principal Alan Lai stepped down as chair of Wrightson ahead of the Oct. 30 annual meeting, with Joo Hai Lee appointed as interim chair.

Wrightson shares were unchanged at 57 cents.



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