As Canada’s Saputo marches towards control of Warrnambool Cheese and Butter it is worth considering whether the process, rather than the outcome, revealed shortcomings in the regulatory environment within which the bid unfolded.
The outcome of the bid was effectively determined by a press release on November 12 last year, when the Treasurer, Joe Hockey, announced that he had approved Saputo’s foreign investment application and cleared the way for its bid.
Nearly a month earlier the big Victorian dairy co-operative, Murray Goulburn had countered the opening offer for WCB by Bega Cheese with a bid of its own and about two weeks later Murray Goulburn applied to the Australian Competition Tribunal, seeking a competition policy authorisation for its bid.
When Saputo all but wrapped up control of WCB last week Murray Goulburn was still tied up in the ACT process, with the earliest possible date for a clearance still more than a month away. Effectively it was unable to compete with Saputo for control of WCB.
So, one regulatory process, the foreign investment authorisation process, cleared the way for a foreign bid in a very timely fashion while another, the competition policy process, kept the most viable local bidder from competing.
In isolation both processes were reasonable. There was no obvious reason why Saputo’s ability to bid for WCB should have been frustrated on foreign investment grounds. Equally, given that Murray Goulburn and WCB both operate within the domestic dairy sector and both have significant operations in the same region of western Victoria there were obvious competition policy issues to be evaluated.
The crude outcome, however, where the local bidder was unable to compete with the foreigner because it was tied up in the regulatory process and therefore was unable to pursue a strategy that may have had positive national interest implications – it may have been able to create a vehicle with the scale, synergies and corporate structure to pursue the acknowledged opportunity for the Australian dairy sector in Asia – appears unfair.
It could be that the WCB situation was unique. With the global agricultural sector rapidly consolidating and Australia’s agricultural industries seen as strategic platforms for the global push into Asian markets, however, it is conceivable that analogous situations could recur.
Ideally, there should be a level playing field for local and foreign bidders where the foreign company clears the national interest tests within the Foreign Takeovers regime.
Joe Hockey could have levelled the playing field by delaying the approval of Saputo’s application and aligning the timeline for that approval with that of the outcome of Murray Goulburn’s competition policy process.
He has the discretion to extend the review process, which is something that has been done -- formally and informally -- quite regularly in the past. (There were a number of Chinese state-owned entities that have been repeatedly asked to re-submit their applications, re-starting the timetable for approval, during the resources boom years).
There has been a suspicion that Hockey rushed the Saputo decision out to blunt the accusation that the Abbott government, influenced by the Nationals, was opposed to foreign investment in agribusiness that flowed from its controversial blocking of Archer Daniels Midland’s agreed bid for Graincorp.
Whatever the reality, and whatever the merits of the ADM decision, no-one has questioned that he, advised by the Foreign Investment Review Board, made the right decision on Saputo’s application. The debate has been about its timing and the interaction between the foreign investment approval process and the competition policy process.
It is an unfortunate fact of life for Australian companies trying to consolidate their sectors in order to create platforms to expand offshore – and the agriculture sector is probably the most obvious – that they are going to have to overcome competition policy obstacles.
Most sectors of the Australian economy have been heavily consolidated in recent decades and therefore any merger of significant players within a sector will trigger competition policy issues.
With the Australian Competition and Consumer Commission defining markets quite narrowly and looking at the impact of mergers on domestic competition and consumers, obtaining approval can be a protracted and difficult process.
Murray Goulburn by-passed the ACCC and went straight to the Competition Tribunal to try to truncate the process and in order to be able to more easily argue the net national interest in allowing its acquisition of WCB even if there were some potential negative impacts on the market for milk in western Victoria.
In the end that still didn’t get it clear of the regulatory process in time to compete freely with Saputo, which may be a unique opportunity lost for the dairy sector and for the national interest.
It would appear obvious that if a similar situation recurred in future it would be preferable if the regulatory processes didn’t gravely disadvantage the local bidder or, as has occurred in the WCB takeover, prevent them from competing. That’s not an argument for tilting the playing field against foreign bidders but for levelling it for local players.
It could be done by directing the Foreign Investment Review Board to align the timetable for foreign investment approval with that of the competition policy timeline where an Australian company has announced an offer conditional on ACCC or ACT approval. It might also be possible to create accelerated timetables for the competition policy processes.
However it were done, it would be preferable for the various regulatory processes that apply to takeover bids to be co-ordinated so that they don’t disadvantage either foreign or domestic bidders and also, incidentally, give the shareholders of the target companies the best opportunity to maximise their outcomes.
Whether or not Murray Goulburn would have cleared the competition policy hurdles and whether or not it would have been able to successfully out-bid Saputo in a fair contest is beside the point. It, and other Australian companies in future, ought to at least have the opportunity to compete fairly.
The different timelines for the foreign investment and competition policy processes denied Murray Goulburn that opportunity and will continue to discriminate against aspiring local offerors unless the policy framework is changed to create some co-ordination of their timelines.