Competition Requirements Raise Issues for Marine Harvest


Marine Harvest likely to fall foul of competition authorities over Northern Harvest deal

By Neil Ramsden Jan. 9, 2018

Marine Harvest's CAD 315 million ($248m) deal for Canada's Northern Harvest Sea Farms looks likely to fall foul of the country's competition authorities, sources have told Undercurrent News.

Two sources -- one analyst who declined to be named, and one executive based in Canada -- suggested Marine Harvest will be aware of the competition issues, but is looking to secure access to the full egg-to-processing supply chain which comes from this deal.

If it has to sell farming assets to complete the deal, this is seen as incidental to gaining this structure, rather than having to build it up itself, which could take years.

Marine Harvest management did not respond to requests for comment.

Jean-Philippe Lepage, communications officer with Canada's Competition Bureau, told Undercurrent that part of the Competition Act “requires compulsory notification if a merger satisfies both parts of a dual threshold test”.

For deals announced in 2017, the transaction threshold was CAD 88m – which this one far surpasses – and the “size of the parties” test meant a deal forming an entity with combined assets or revenues of more than CAD 400m would be looked at.

A teaser put out in 2017 – when the intention had been to sell Northern Harvest and North Coast Seafoods as a package – showed the salmon farmer was estimating sales of CAD 133m in 2017; CAD 168m in 2018; and CAD 183m in 2019.

Marine Harvest does not seem to have detailed its turnover from Canadian operations as they stand, but earnings before interest and tax came to €166.2m (CAD 250.7m) in 2016; so it seems highly likely sales would surpass that threshold.

The Bureau also has authority to review transactions that fall below the thresholds, or otherwise do not meet notification requirements, he added.

Asset breakdown

Both the analyst -- who tracks Marine Harvest -- and the Canadian source feel the company will run into competition issues, based on the dominant position it would hold in Canadian salmon production.

Marine Harvest's Canadian operations, based on the west coast, produced 29,353 metric tons in the first three quarters of 2017. In its full year 2016, it produced 43,349t.

Gray Aqua Group, which it acquired early in 2017, currently holds nine licenses over on the east coast of Canada. Marine Harvest has said it plans to build an organization capable of producing 15,000-20,000t per year here, utilizing at least some of the 17 currently applied-for farming licenses in Newfoundland.

That's before adding Northern Harvest's output to the total; it currently has a harvest capacity of 25,000t with 45 existing licenses and infrastructure, and has scope to expand its production to as much as 40,000t on its current licenses, it has said. It also has a further 13 licenses in application mode.

The total Canadian production for 2017 is forecast to be 137,000t in 2017 and 146,000t in 2018. So, Marine Harvest is on track to be producing a large portion of Canadian output in the coming years; larger than competition authorities will be comfortable with, sources suggested.

“If they have to sell some farming operations to be able to keep the smolt and broodstock, and processing facilities, they probably would,” said the analyst. “The other parts in the value chain are intact. That's key; if you're going to build an operation in eastern Canada you need the whole setup, and Northern Harvest will provide them with that platform.”

A question of eggs

Marine Harvest expanded to the east coast of Canada by acquiring the assets of Gray Aqua, but that didn’t give it the access to Newfoundland broodstock that it needed, and which the purchase of Northern Harvest provides.

Its other options would have been buying Newfoundland salmon eggs from rival Cooke Aquaculture -- seen as unlikely to happen -- or setting up from scratch, which would take a few years, sources previously told Undercurrent.

The Canada-based executive mentioned previously told Undercurrent in January 2018 he had heard Marine Harvest had already been getting its eggs from Northern Harvest.

“The question is whether they know they can’t get this through the competition [authority process], but did this to get egg supply,” he said. “I think they know competition authorities is going to be an issue.”

Marine Harvest's plan for the Gray Aqua assets it bought -- seen by Undercurrent as they stood in 2017, before the deal for Northern Harvest -- had featured a land-based broodstock facility “for egg security” based in Newfoundland.

It also aimed to begin construction on a recirculating aquaculture system hatchery in 2018; to open a regional south coast and Newfoundland head offices; to have the first sea site stocked early in 2019; and to construct or agree a deal with a third party for a 20,000t capacity processing plant.

Again, these were its plans before the deal for Northern Harvest; how much of this still stands, if it acquires said “egg security” instead of needing to build it, is unknown.

Morpol take two?

When Marine Harvest bought Morpol in 2012, it ultimately had to sell off part of the firm's farms in the UK in order to satisfy the UK competition authority, with Cooke as the buyer.

The analyst said that once again -- should Marine Harvest have to sell farming assets to satisfy authorities -- Cooke would be his pick as the most likely to come in for them, as long as they themselves didn't then become too dominant in competition terms.

Cooke responded to Undercurrent only to say it would not comment on speculation in terms of its potential interest.

Contact the author neil.ramsden@undercurrentnews.com