BREAKFAST DEALS: Grainy picture

The market appears to think ADM's offer for GrainCorp isn't enough, and CEO Pulse reveals Australian bosses' views on foreign investment.

The market has sent a clear signal to the GrainCorp board that $11.75 a share isn’t enough, not yet at least. The move by America’s ADM is causing much angst on the conservative side of politics, thanks to the Liberal-National Coalition – one can only imagine what will happen if a Chinese rival emerges. On cue, a Business Spectator survey taps Australian CEOs for their views on foreign investment, including Chinese investment in agricultural assets. Also this morning, Sundance Resources’ suitor wins in principle support from its Chinese lender, Lonestar Resources gets its backdoor Down Under listing after all and there’s yet more movement in the media sector.

GrainCorp, Archer Daniels Midlands

The GrainCorp share price finished trading yesterday at $12.30, 38 per cent higher than the previous closing price. More importantly, it’s almost a 5 per cent premium to the $11.75 a share that US soft commodities giant Archer Daniels Midland has bought in at.

As Business Spectator’s Stephen Bartholomeusz points out, ADM hasn’t actually put an offer to GrainCorp. Instead they’ve secured 14.9 per cent of the register, the maximum allowed to an international player by the Foreign Investment Review Board (FIRB) before you have to call them.

ADM followed this up with a note to the board indicating its preparedness to put a $2.7 billion offer, or $11.75 a share, as long as the target’s directors grant due diligence and exclusivity…and the ADM board approves the offer.

GrainCorp has tapped Credit Suisse and Greenhill Caliburn as advisers, while Gilbert Tobin is handling legal matters.

The share price premium will give the board some confidence to reject the suitor’s request for exclusivity at least. The market is telling them that GrainCorp is worth more than $11.75 a share, thanks to its strategic importance.

This columnist offered the misguided suggestion yesterday that agricultural protectionists would object if a Chinese suitor emerged for GrainCorp. Nope, they’ll object to Americans as well.

Queensland Premier Campbell Newman led the charge, arguing that GrainCorp has an effective monopoly on east coast grains export infrastructure and such weaponry in foreign hands would be worrisome.

Nationals Leader Warren Truss said that this proposal should "surely” push the Gillard government and FIRB to "rigorously apply Australia’s national interest test,” though he left few in doubt about what he believes that verdict should be.

"SA grain export facilities are already owned by Canada’s Viterra, the Port of Melbourne facility is 50 per cent owned by Japan’s Sumitomo through the Emerald Group and the second Brisbane Port facility by Singapore’s Wilmar. If GrainCorp is swallowed up by US giant Archer Daniels Midland, all bulk grain exporting capacity in SA, Victoria, NSW and Queensland will be foreign owned,” said Truss.

"Australia’s grain industry is critically dependent on having reliable access to efficient export facilities. These facilities were built and paid for by Australian farmers but within weeks they may own none of them.

"We are rapidly descending into a state where farmers will toil in their paddocks while post-farm gate profits from Australia’s $9 billion a year grain crops will be counted in multi-national boardrooms.”

The bad news for Truss, a former trade minister under the Howard government, is that FIRB hasn’t found much trouble waving through the foreign takeovers of ABB Grain and AWB. GrainCorp might be more precious given that it’s the last one standing, but is that enough?

If a player like Viterra or Wilmar jumped into the GrainCorp race, there would be legitimate competition concerns that could prevent a deal. But that’s about it.

The interesting thing to emerge yesterday is that the James Packer-backed Ellerston Capital was the player selling to give ADM an inside line on the GrainCorp register. Ellsteron confirmed to the market that it sold about one third of its stake in the company.

Ellerston has a hand in one of the next proposed targets in the agricultural consolidation push. The investment fund run by Ashok Jacob, a close confident of Packer, grabbed a six per cent stake in Treasury Wine Estates, the old wine arm of Foster’s Group, in April.

TWE, which Bartholomeusz also wrote on yesterday, is in a vulnerable position as Asian agribusiness buyers look for regional assets. It’s just one of the companies that will get closer attention from M&A watchers as the GrainCorp saga unfolds, along with players like Incitec Pivot, Nufarm and Goodman Fielder.

CEO Pulse – Chinese Investment

Given the potential for a Chinese suitor to emerge for GrainCorp, the latest edition of Business Spectator GA Research CEO Pulse Survey is well timed.

Over 100 chief executives from Australian companies with turnover of more than $100 million were asked the following: Do you think it is in Australia’s national interest to encourage more or less Chinese capital investment?

Their responses were broken down into specific areas: across the economy generally, manufacturing, infrastructure, mining, agricultural products and the rest of the agricultural industry.

Less than 50 per cent of respondents said Australia should encourage more investment in either of those two agricultural categories.

"Food production is going to be a major issue in years to come as the worlds’ population continues to grow,” said one CEO. I have no problems with Chinese investment in our industries but have concerns over ownership of large tracts of land over our food producing areas.”

It seems Truss definitely isn’t alone.

However, the graph accompanying this question on the Pulse Survey shows that a majority of respondents, about 65 per cent, would agree that current levels of Chinese investment in the agricultural sector are not something to worry about.

Interestingly, there was much less hesitation towards other sectors. No less than 57 per cent agreed that more investment should be encouraged in the other four categories, with no more than 15 per cent responding that we should stifle Chinese investment in those areas.

Sundance Resources, China Sichuan Hanlong Mining

After a trading suspension that lasted almost a month, Sundance Resources has burst back onto the ASX with some good news.

The iron ore hopeful’s suitor China Sichuan Hanlong Mining, which has shown signs of hesitation it must be said, has secured an in principle agreement from China Development Bank to provide a debt facility of $1.02 billion for its $1.4 billion takeover deal.

While it should also be pointed out that the 3 per cent bump in Sundance’s share price still leaves it languishing with a market cap of $1.07 billion, or 35 cents a share. That’s well below the offer price of 45 cents, reflecting the markets rightful, ongoing scepticism about this deal.

But for the optimists/risk-taking speculators, this is a step in the right direction.

The expiry date for the scheme of implementation has been pushed back to January 11 from December 31. This mightn’t be particularly consequential as there’s not a lot of business that gets done around that time of the year.

If the deal comes off, Hanlong will get control of the $4.7 billion Mbalam rail, port and mine project that straddles the borders of Cameroon and the Republic of Congo.

Lonestar Resources, Amadeus Energy

Texas-based Lonestar Resources has secured a backdoor listing Down Under at long last thanks to the ASX-listed Amadeus Energy.

The two US-focused oil and gas companies will join forces by Amadeus issuing 460 million new shares to the shareholders in Ecofin Energy, Lonestar’s London-based holding company.

If certain reserves are proved within 18 months time, a further 40 million shares will be issued to those shareholders, which would give Ecofin 68 per cent of the combined company.

The deal represents a big win for Lonestar, which tried a similar move with ASX-listed Eureka Energy back in mid-June.

The target’s directors weren’t too impressed with the move and ultimately threw their support behind Aurora Oil & Gas, which acquired Eureka for $108 million.

Fairfax Media, News Corp, Foxtel

Fairfax Media are continuing to trade at record lows, but major shareholder Allan Gray has used it as a buying opportunity.

The institutional shareholder has splashed $10 million on a few parcels of Fairfax stock over the last few weeks, which has pushed its stake in the company up to 10.4 per cent from 9.3 per cent. That’s a bargain, considering the shares were trading at twice their current levels in May.

Allan Gray managing director Simon Marais has spoken on a few occasions about the potential for Fairfax to be broke up in some way. While there’s the possibility that he believes in Fairfax’s turnaround strategy, it’s more likely that he’s picking up cheap stock in a company that’s valued at $858 million as a whole, but much more if its sliced up.

Elsewhere in media, Foxtel is taking on internet piracy by signing a landmark deal with US giant HBO that will see hit shows screen in Australia hours after doing the same in the US.

News Limited, the owner of this website, recently won crucial approval from the major shareholders in Consolidated Media Holdings, billionaires James Packer and Kerry Stokes, that deliver an extra 25 per cent stake in Foxtel to the Australian media house. News Limited will now share Foxtel 50:50 with Telstra.

But this has also come at a time when online piracy is undermining the ratings boost that the free-to-air networks are getting from hit TV shows. Ten Network, which is battling the hardest, recently got some terribly disappointing results from its second season of the Emmy-award winning Homeland, thanks in no small part to viewers downloading the program beforehand.

The Australian (which is also owned by News Limited) reports that Foxtel has done a deal with HBO that will see episodes of headline shows premier in Australia hours after they do so in America, reducing the time in which viewers would have an incentive to download shows to their computers.

And while we’re talking News Limited, the parent company News Corp has denied reports that Rupert Murdoch has his eye on the Los Angeles Times and the Chicago Tribune as the papers’ owner Tribune Co comes out of bankruptcy.

Fairfax reports that a spokesperson for News described the report as "wholly inaccurate”.

Given Murdoch’s penchant for newspapers, forgive us if our curiosity lingers.

Wrapping up

Former Guinness Peat Group boss Gary Weiss took the deputy chair position at ClearView Wealth Management yesterday, reacquainting himself with the business he used to oversee at GPG when the investment firm still held it.

New owner Crescent Capital Partners teamed up with Weiss to buy GPG out earlier this year. The target’s independent directors declined to recommend the offer, though GPG’s near majority stake meant a change in control was assured.

The bidding vehicle, CCP Bid Co, went unconditional with its offer at the beginning of this month after its stake in the company surpassed 70 per cent. When last we heard, that stake was almost passing 80 per cent.

And finally, The Australian expects construction giant Brookfield Multiplex to be named as the preferred builder for the expansion of Victoria’s new prison at Ararat.

The contract is worth $400 million. Why risk going to prison when you can earn that kind of dosh clean?

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