GrainCorp offers Hockey extra sugar

Archer Daniels Midland wants to take everything but politics off the table as the deadline for a foreign investment decision on its $3.4 billion takeover offer for GrainCorp approaches, and it made a good fist of it on Wednesday.
By · 28 Nov 2013
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28 Nov 2013
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Archer Daniels Midland wants to take everything but politics off the table as the deadline for a foreign investment decision on its $3.4 billion takeover offer for GrainCorp approaches, and it made a good fist of it on Wednesday.

The American agribusiness group's takeover proposal has already been reviewed by the Australian Competition and Consumer Commission and cleared.

The Foreign Investment Review Board was about to give its verdict on the takeover when the election was called, and it, too, was expected to be a green light.

Treasurer Joe Hockey must also approve it, however, and there has been palpable tension in the new Coalition government about the takeover - tension that ADM tackled with its announcement on Wednesday.

It offered an additional $200 million of capital expenditure for GrainCorp, and three-year price caps on grain handling and storage charges at GrainCorp's silos and ports.

Commitments to run open-access regimes at silos and ports and maintain GrainCorp's head office and management in Sydney were renewed, and ADM said it would also maintain a local grain marketing team, and consult twice a year with grower organisations about the way GrainCorp was operating.

Those commitments make it harder for the government to block the takeover and cite commercial or economic "national interest" reasons.

They also create an opportunity for the government to approve the deal and show that it is not internally divided, of course, and it's an opportunity that needs to be taken: the risk if it isn't is that international investors will believe the new Treasurer got rolled, and that a government that says it is open for business has blocked one very big business deal mainly to ease political pressure within its own ranks.

ADM's bid was backed by GrainCorp's board in late April after the US group boosted it a second time, from $12.20 a share to $13.20 a share - 50 per cent above GrainCorp's price in October last year before ADM turned up.

Concerns that the bid would be blocked had however pushed GrainCorp's share price down from a high of $12.78 a share when the sweetened offer was recommended to $11.13 ahead of Wednesday's announcement. The shares closed at $11.33 and traded as high as $11.85 after ADM's announcement, on the theory that approval is now more likely.

Hockey announced in early October that he was extending the deadline for a decision until December 17 because of its "size and complexity", but it is the politics of the Coalition that are the main complication for him.

Liberal "dries" see no good reason for the Treasurer to intervene, but the Nationals are opposed to the sale, with Barnaby Joyce and Nationals leader Warren Truss leading the charge. According to some, Joyce has gone as far as putting his position in the Coalition on the line. Country Liberal MPs including Bill Heffernan and Sharman Stone are also opposed.

On the other side of the house, Opposition Leader Bill Shorten and shadow treasurer Chris Bowen have both supported the deal, reinforcing a view that the takeover would not have been a political problem for a Labor government. The Coalition was "at war with itself", Bowen observed earlier this month after Hockey declared that he would not be "bullied" over the decision.

Foreign takeovers of Australian grain handlers have swallowed two local groups in recent years. GrainCorp would be the third, and by volume would double foreign ownership of the industry to about 70 per cent.

As I have written before, this is an opportunity lost. Like mining, the grain industry is a core competence in this country. The mining sector has produced global players including BHP, and the grain sector has not.

Saying that is one thing. Blocking foreign takeovers on national interest grounds when Australia is an open economy and needs foreign investment is another, however. ADM's bid for GrainCorp does not appear to raise national interest concerns of the magnitude that led Wayne Swan to block Singapore Exchange's takeover of the ASX in 2011.

The decision is finally Joe Hockey's to make, and he is in a corner. If he lets the deal go through, the Coalition will be carrying some very unhappy country-based members. If he blocks it, the government risks being sanctioned by the markets, and its claim that it is "open for business" will be seriously compromised.

The only way through that I can see is for both sides in the Coalition to agree that ADM has actually done the government a favour, by serving up undertakings that everyone can acknowledge make the takeover acceptable, perhaps with a few final tweaks.

It might happen, and hopefully will - but you certainly wouldn't say at this stage that it is guaranteed.
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