Shareholder Don Seaton is standing his ground, writes Brian Robins.
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 whether he would accept the bid.
Treasurer Joe Hockey delayed a decision late on Friday whether to approve ADM's $2.3 billion takeover bid for Graincorp until December 17. Hockey's approval is needed under foreign investment rules.
If Seaton knew GrainCorp would accept the takeover offer from ADM, 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 Capital, which was GrainCorp's largest investor with 7.3 per cent, and AMP with 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 53 per cent stake, Seaton emerged as the largest individual investor in GrainCorp, holding around 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 sizeable 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 began last year to sell to GrainCorp.
"I didn't want control of a very prosperous local business going to a foreign entity."
Seaton said 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 - so concerned with the prospect of control moving abroad - even considered offering to buy the shares former Gardner Smith employees received in GrainCorp following the takeover.
"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 the longer-term interests of the company.
To Seaton, it made good business sense to ensure the interests of both 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."
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 former employees. The employee fund was created to hold shares since the employee superannuation fund could not invest in the company.
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 oilseed crushing.
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 held by the big four global grain traders - Louis Dreyfus Commodities, 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 led to it moving 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, where it goes head to toe with GrainCorp.
And not all of their business practices may be above board.
In August, for example, 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 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 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.
Reflecting that concern, 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 approves the takeover, NSW Farmers want 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 WAM Capital's Geoff Wilson. "I'm confident the Foreign Investment Review Board will approve the deal."
■ 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