Hands off our GrainCorp: owner
He's the octogenarian businessman who has emerged as the largest individual shareholder in GrainCorp and he has no intention of accepting the bid by US company Archer Daniels Midland for his holding.
"No way," Don Seaton said when asked if he would accept the bid.
Treasurer Joe Hockey late on Friday pushed back a decision on whether to approve ADM's $2.3 billion takeover bid for Graincorp until December 17. Mr Hockey's approval is needed under foreign investment rules.
If he knew GrainCorp would accept foreign takeover offer, he wouldn't have sold the company he controlled - Gardner Smith - to GrainCorp just over a year ago.
That deal, which valued Gardner Smith at $302 million, was part funded through a $159 million share issue by GrainCorp.
A shortfall from that issue put pressure on GrainCorp's share price and, with the prospect that the price could be soft for a while, key shareholders such as James Packer's Ellerston, which was GrainCorp's largest investor with 7.3 per cent, and AMP, with another 5.5 per cent, opted to sell, paving the way for ADM to emerge with a 15 per cent interest before it launched its takeover offer.
For their part, shareholders in Gardner Smith received a mix of GrainCorp shares and cash. And, as the dominant shareholder in Gardner Smith with a 55 per cent stake, Seaton emerged as the largest individual investor in GrainCorp, holding about 3 per cent of the capital.
The purchase of Gardner Smith plus that of the smaller Integro business from Goodman Fielder has resulted in GrainCorp emerging with a large presence in the oil crushing business for the first time.
Gardner Smith holds a 40 per cent share of the canola seed crushing industry, rivalling Cargill's market presence. But, if control of GrainCorp goes offshore, this will leave 80 per cent of the domestic crushing capacity in foreign hands, which has raised anxiety levels for some growers.
"The express condition was to sell only to an Australian or New Zealand company, to protect the employees," Seaton says of the negotiations that started last year to sell to GrainCorp. "I didn't want control of a very prosperous local business going to a foreign entity."
Seaton says if he had known control of GrainCorp would change hands, he would have sought to insert a clause to prevent control of his business going offshore.
And, once the ADM bid was on the table, Seaton even considered offering to buy the shares former Gardner Smith employees received in GrainCorp after the takeover, so concerned was he with the prospect of control moving abroad.
"They all knew I was opposed to selling to ADM," he says.
Unusually, Gardner Smith prospered in part by ensuring key employees held shares in the company, so they would focus on its longer term interests.
To Seaton, it made good business sense to ensure the interests of the owners and staff were aligned.
"It gave them a long-term incentive - to look beyond the short term and to be participants in the business and focused," he says.
One consequence of cutting employees into the equity was that, by the time of the sale to GrainCorp, Seaton's stake in Gardner Smith had been watered down to 53 per cent. The next largest holder was an employee share fund, followed by a host of present and past employees.
Seaton began working for Gardner Smith in 1951 and bought a controlling stake in 1964. Management was quick to take advantage of a shift in the tallow trade to using bulk terminals away from barrels and drums.
Gardner Smith broadened its reach to establish a nationwide network of bulk liquids terminals and eventually moved into grains crushing and on to edible oil collection and recycling - as well as into the feedstock business as an end market for some of the waste from the oil seed crushing business.
But it is the increasing level of foreign ownership of Australia's agriculture sector that has caused concern for Seaton and broadly across the farm sector, especially with the dominant position now held by the big four global grain traders - Louis Dreyfus, Cargill, ADM (which wants control of GrainCorp) and Bunge.
The single desk for marketing wheat restricted their role in Australia but deregulation has resulted in all four revitalising their local activities.
Bunge, for example, sold out of Australia a decade ago, but the opening up of the market has seen it move back in, while Cargill has bolstered its presence over the past few years, recently spending an estimated $US373 million to buy Australia's largest maltster, Joe White Maltings. It is also a big player in oilseed crushing.
In August, ADM disclosed it had more than doubled to $US54 million the amount set aside for potential penalties for alleged breaches of Foreign Corrupt Practices legislation in the US after investigations by both the Securities and Exchange Commission and the US Department of Justice. ADM has yet to provide details but the large provision has sparked speculation its violations were more severe than suspected.
GrainCorp handles three-quarters of eastern Australia's grain crop and 90 per cent of eastern Australia's bulk grain exports. It also operates seven of the eight bulk export grain elevators in eastern Australia and has a half interest in a new terminal being built in Newcastle.
NSW Farmers, along with other farmer lobby groups, has been anxious for the federal government to prevent ADM's bid from succeeding. If the Coalition government does approve the takeover, NSW Farmers wants a condition of the deal that GrainCorp's port assets be divested.
Partly reflecting investor unease over the outlook for the ADM bid being approved quickly, GrainCorp's share price is trading well below the implied bid value, which has attracted the interest of some investors.
"The share price is pricing in risk," says Geoff Wilson, of WAM Capital. "I'm confident the Foreign Investment Review Board will approve the deal."
GRAINCORP’S
SPREAD
■ Handles 75% of
eastern Australia’s
grain crop
■ Handles 90% of
eastern Australia’s
bulk grain exports
■ Markets 35% of
eastern Australia’s
grain to overseas
consumers and
25% to domestic
consumers
■ Produces 40% of
Australia’s canola
oil and refined
edible oils
■ Produces 35% of
Australia’s flour
■ Produces 35% of
Australia’s malt
Frequently Asked Questions about this Article…
Don Seaton is the octogenarian businessman who became the largest individual shareholder in GrainCorp after his Gardner Smith sale. He is passionately opposed to foreign control of GrainCorp, has said he will not accept Archer Daniels Midland’s (ADM) takeover bid, and has repeatedly argued he would not have sold Gardner Smith to GrainCorp had he known control might later move offshore.
US company Archer Daniels Midland (ADM) launched a takeover offer valued at about $2.3 billion for GrainCorp. Because it involves foreign ownership, Treasurer Joe Hockey’s approval is required under Australia’s foreign investment rules; the decision was pushed back until December 17 in the article’s coverage.
GrainCorp plays a major role: it handles roughly 75% of eastern Australia’s grain crop and about 90% of eastern Australia’s bulk grain exports. The company operates seven of the eight bulk export grain elevators in eastern Australia, markets around 35% of eastern Australia’s grain to overseas consumers and 25% domestically, produces about 40% of Australia’s canola oil and refined edible oils, and produces roughly 35% of Australia’s flour and malt.
Grower anxiety stems from the prospect that control of GrainCorp moving offshore could leave a large share of domestic crushing capacity in foreign hands — the article highlights concerns that up to 80% of domestic crushing capacity could become foreign-owned. NSW Farmers and other lobby groups have urged the federal government to block the bid or, if approved, to require divestment of GrainCorp’s port assets as a condition.
Gardner Smith was sold for about $302 million, part-funded by a $159 million GrainCorp share issue. A shortfall in that issue put downward pressure on GrainCorp’s share price; major shareholders such as James Packer’s Ellerston (7.3%) and AMP (5.5%) sold, enabling ADM to build a roughly 15% interest before launching its takeover offer. Don Seaton, via Gardner Smith, emerged holding about 3% of GrainCorp’s capital.
Yes. The article reports ADM disclosed it had more than doubled to about $US54 million the amount set aside for potential penalties related to alleged breaches of the US Foreign Corrupt Practices Act, following investigations by both the Securities and Exchange Commission and the US Department of Justice. ADM had not provided full details, but the large provision sparked speculation about the severity of the allegations.
Investor unease over whether the ADM bid will be approved quickly has left GrainCorp’s share price trading well below the implied bid value, which has attracted interest from some investors looking for value. Geoff Wilson of WAM Capital said the market is ‘pricing in risk’ but expressed confidence the Foreign Investment Review Board would approve the deal.
The article notes farm lobby groups, including NSW Farmers, want conditions attached to any approval — specifically that GrainCorp’s port assets be divested. This demand reflects broader concern about preserving domestic control of critical grain handling and export infrastructure if ownership moves offshore.
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