On September 5, 2013, Canada’s Competition Bureau announced that a Consent Agreement had been negotiated requiring a number of divestitures by Agrium Inc. in relation to its acquisition of the majority of Viterra Inc.’s retail agri-products businesses from Glencore International plc. A position statement accompanied the Bureau announcement.
Under the terms of the Consent Agreement, Agrium will divest seven retail stores and nine anhydrous ammonia businesses.
By way of background, Viterra – successor to the former Saskatchewan, Alberta and Manitoba Wheat Pool co-operatives, as well as the largest grain handler in South Australia and a significant food processor in Canada, Australia, New Zealand and the United States - was initially sold to Glencore, but Glencore simultaneously announced side agreements to divest some Viterra assets to Agrium and Richardson International Ltd., and (later) to CF Industries. The Bureau cleared the acquisition of Viterra by Glencore in May 2012, and Richardon’s acquisition of some of Viterra’s Canadian grain handling assets in December 2012 (Stikeman Elliott LLP acted as counsel to Richardson).
The Bureau conducted a separate review of the sale by Glencore of the majority of Viterra’s retail fertilizer and crop input network in Western Canada to Agrium, including:
- approximately 210 of 253 retail stores;
- three dry fertilizer storage facilities;
- a seed research and development unit;
- an interest in a crop protection manufacturing business; and
- a farm fuel business.
The Bureau viewed the relevant product markets as the retail supply of urea and the retail supply of anhydrous ammonia – both nitrogen fertilizers but with different methods of application and significant costs to switching between them. The geographic scope of the market was identified as local, within a 35km radius of each retail store. The Bureau considered various factors identified in the Merger Enforcement Guidelines:
- On effective remaining competition, the Bureau viewed the parties as particularly close rivals and Viterra as an effective and vigorous competitor;
- On barriers to entry, the Bureau noted certain barriers, including the opening of a retail store, significant capital expenditures, the requirement to have specialized equipment and certain difficulties sourcing products from suppliers;
- On market maturity, the Bureau deemed the industry to be mature and noted that a new entrant would have to gain market share at the expense of incumbents.
Despite the above factors, the Bureau considered a number of national, regional and local competitors to be effective remaining competitors in the vast majority of local markets.
The Consent Agreement also resolves vertical issues identified by the Bureau, such that Agrium – itself the largest manufacturer of urea and anhydrous ammonia in Western Canada - will have to supply anhydrous ammonia to any purchaser of the divested assets for up to four years, with price caps in place.
The review undertaken by the Bureau demonstrates the Bureau’s willingness to work with parties to come to a resolution. However, the lengthy review also highlights the potential delay that parties may face during the course of a merger that raises complex issues (in this case, more than a year).