• Targeted divestments to assuage only some concerns
• ACCC balks at merged entity’s control of genomic data
• Merger to accelerate innovations in testing capabilities

The Australian competition watchdog’s Phase 2 review of Zoetis Holdings’ proposed USD 160m acquisition of Neogen Corporation’s global animal genomic testing business faces significant hurdles, although a pathway to approval remains open, competition lawyers said.

The Australian Competition and Consumer Commission (ACCC) is more closely scrutinising the transaction after review was escalated on 17 July. US-listed Zoetis, an animal health company, initially notified the ACCC of the acquisition on 12 May.

Zoetis and Neogen Genomics, a US-based food safety company, both supply genomic testing services for beef cattle, dairy cattle and sheep in Australia. The ACCC has concerns that the acquisition could substantially lessen competition in the supply of genomic testing services for cattle given it would combine the two largest suppliers of genomic testing services for cattle in Australia.

Sydney-based Bartier Perry Lawyers partner Jason Sprague said “the transaction seems likely to obtain approval, although the probability is materially lower than would be expected for a typical foreign-to-foreign acquisition”.

Sprague said it was likely the parties will offer undertakings aimed at addressing concerns regarding access to genomic data, interoperability or data governance.

“If competition concerns prove more substantial, targeted divestments of Australian assets could also be explored. These would be consistent with traditional merger remedy approaches,” he said.

The parties were likely to argue in support of clearance that the genomic testing market was broader than just Australia given it could be “supplied internationally and both businesses operate on a global basis”.

They would also probably advance the claim that continuing competition from other providers exists “and the acquisition will accelerate innovation and improve genomic testing capabilities for livestock producers,” he said.

“Such arguments are often persuasive where competition concerns can be addressed without preventing the transaction altogether.”

Paul Kirton, Legal Practice Director at Machpherson Kelley, said the Phase 2 in depth assessment indicated the ACCC had “significant concerns” on the deal.

ACCC’s beef

According to Melbourne-based Kirton, the ACCC was considering the long-term implications of one dominant player owning the majority of genetic data. “So, on that basis, the fact of moving to Phase 2 does place serious questions on the likelihood of ultimate approval,” he said.

“The respective market shares are purely factual, so the heavy lifting will need to be done to convince the ACCC that despite the dominant market share, the merged entity will remain constrained by current and potential competitors and/or by customers,” he added.

It was “hard to foresee a remedy” that would clear a pathway to approval, he said, given “the supply of genomic testing services for cattle in Australia by Neogen appears to be a core part of the business being acquired.”

“So, divestiture does not seem like an option,” he said, adding that litigation could potentially result if the ACCC blocked the deal.

“The Australian aspect is only a part of the acquisition of Neogen’s global business. So, the broader implications of rejection by the Australian regulator might drive the parties to court if the merger was not approved.”

Under Australia’s new merger regime, which commenced in January, the regulator has up to 90 additional business days to make a decision on a deal, following a Phase 1 referral.

Zoetis announced the USD 160m transaction on 3 March, saying that by integrating Neogen’s genomic technologies and data solutions, it would expand its capabilities to deliver predictive insights, individualized care, and greater value to customers across major livestock and companion animal species.