Hockey move adds a grain of uncertainty to ADM's bid

It is easy to forget that before the sharemarket began to build up a head of steam over the past few weeks fund managers were forced to actively trade around takeover offers in a bid to generate returns in tough market conditions.

And as the largest - and longest-running - bid on the table, GrainCorp has attracted its share of arbitrage attention.

It was nearly 12 months ago that US grain trader Archer Daniels Midland lobbed its first bid for the company, taking advantage of a soft share price after a $159 million rights issue to get a 15 per cent stake in the company.

Initially offering $11.75 a share, that was sweetened to $13.20, including dividends, valuing the target at $2.3 billion. And from this month, shareholders will begin receiving a 3.5¢-a-share monthly dividend until the deal wins regulatory approval.

So, not surprisingly, a big portion of GrainCorp's shares is now held by arbitrageurs. As a result, Treasurer Joe Hockey's surprise decision late on Friday to extend the deadline for a decision on whether to block the takeover on national-interest grounds generated a significant level of anxiety among at least one class of investor.

After Prime Minister Tony Abbott at his first news conference slapped down the rank populism of some in the National Party by saying a Coalition government would not block foreign investments, approval of the ADM bid for GrainCorp was thought to be a foregone conclusion.

Now an extension to mid-December might well push back the deal, and winning all government approvals, into the new year, since the bid also needs to win clearance from China's Ministry of Commerce.

Already foreign governments such as the European Commission, Japan and Korea have waved the deal through and, given GrainCorp's limited direct presence in China, this is expected to be a formality.

Most in the market expect Beijing to wait until the Australian government delivers its verdict before it responds. Hence the prospect for a further prolonged delay.

For arbitrageurs, the extension by Canberra was all the reason some needed to exit the shares on Monday, pushing the stock down another notch to $12.15. It is already trading well below the April highs of about $12.80 when the revised offer from ADM won acceptance from the GrainCorp board.

And vested interests opposing the deal are expected to take full advantage of the extra time the deal is on the table to push their barrow, which might test further the resolve of some of the arbitrageurs.

Farmer lobby groups are especially touchy about the extent of GrainCorp's resources - in particular its port assets, a fact that is well recognised already since they are regulated by the competition watchdog, the Australian Competition and Consumer Commission, to ensure there is open and fair access.

The natural response of some in financial markets is that "time is money", especially given the pipeline of new floats in the offing, with investors keen to recycle capital to take advantage of continuing investment opportunities. This might keep downside pressure on GrainCorp stock for a while yet.