GrainCorp decision threatens investment
The government's declaration that it is "open for business" has come under scrutiny after the Treasurer's rejection of Archer Daniels Midland's bid for GrainCorp.
GrainCorp shares lost almost almost a quarter of their value after Joe Hockey said on Friday that the US grain trader's $3.4 billion takeover proposal was contrary to the national interest.
"There are no appropriate conditions that would mitigate the national interest concerns associated with the proposed acquisition," Mr Hockey said, adding that the Foreign Investment Review Board was split about the bid.
"Many industry participants, particularly growers in eastern Australia, have expressed concern that the proposed acquisition could reduce competition and impede growers' ability to access the grain storage, logistics and distribution network," he said.
Mr Hockey added that he was nonetheless inclined to approve any proposals from ADM to increase its GrainCorp shareholding up to 24.9 per cent. As part of the takeover bid, ADM has to hold its 19.85 per cent stake in GrainCorp until at least December 31.
GrainCorp and ADM expressed disappointment over the decision. Shares in the country's largest grains handler plunged more than 26 per cent before closing 22 per cent lower at $8.72.
GrainCorp chairman Don Taylor said the blocked bid would "have enduring implications that will be felt not only by our shareholders but by the entire industry".
"Australian agriculture has been prevented from realising the potential benefits from the significant capital ADM would have invested in the long-term future of the industry."
GrainCorp handles 75 per cent of eastern Australia's grain crop and 90 per cent of its bulk grain exports. It markets 35 per cent of eastern Australia's grain to international buyers and 25 per cent to domestic consumers.
Mr Hockey said the issues he had to take into account were much broader than those considered by the Australian Competition and Consumer Commission, which had approved the deal.
He stressed that "it could hardly be suggested that we are closed for business".
"We are open for business. Of the more than 130 applications that have come to my desk since the election, only one has been declined and this is it."
Even so, the Business Council of Australia said further details about the decision-making process were crucial in understanding the rationale behind such a move.
"It is important this decision does not increase uncertainty in the global community about the rules of the game on competition and Australia's policy settings on foreign investment generally," BCA chief executive Jennifer Westacott said.
The BCA's stance was echoed by the American Chamber of Commerce in Australia, which said it was "concerned about the signals this decision may send to other potential foreign investors".
"No matter how economically rational a decision might be and how they appease the stakeholders, there is a political layer that is a little bit tough to predict," PAC Partners agribusiness analyst Paul Jensz said.
"[It] places a bit of a discount and a bit of uncertainty around the investment in agriculture in Australia. Companies try and deal with external risks as well as they can. Australia has been seen as a politically stable, sensible place to put capital," Mr Jensz said.
"That surety has not totally been dismissed, but it's been challenged."
Mr Jensz said ADM's next steps would depend on its expansion plans in the Asian region. "If they want quickly to get up to 24.9 per cent, they have to have an extraordinary general meeting to do that in one swoop," he said.
"If they think it's an imperative to grow fast in this region, then ADM can do it alone, or they can do it with Wilmar, where they have a 16 per cent stake in Singapore, and they have a 20 per cent stake here in Australia [in GrainCorp]."
On the other hand, GrainCorp faced difficulties as a stand-alone business amid lower volumes and lower cash flow. "With the backing of ADM and the large amount of capital that they were putting into their storage and handling systems, they would have been able to invest through the cycle," Mr Jensz said.
Foreign investment knock-backs
Australian Securities Exchange 2011
■ Then-Treasurer Wayne Swan decided that the Singapore Exchange’s $8 billion proposed takeover of the ASX was not in the national interest, pointing to the ASX’s role in Australia’s “long-term economic wellbeing and development”.
■ Peter Costello also referenced the national interest for his shock decision to block Shell’s $10 billion play for Woodside Petroleum. He said the Dutch giant’s oil and gas interests in Asia could conflict with the development of Woodside’s North West Shelf reserves.
Oz Minerals 2009
■ Swan said he could not approve Chinese state-owned Minmetal’s $2.6 billion takeover of OZ Minerals if it included OZ’s Prominent Hill coppergold mine, situated inside the Woomera rocket range.
He cited “national security” as the reason. The takeover proceeded without Prominent Hill.
Lynas Corporation 2009
■ FIRB required that China Nonferrous Metal Mining Co reduce its proposed stake in rare earths miner Lynas to less than 50 per cent, among other conditions. CNMC then walked away from the deal.