Hockey: national or Nationals issue?

Treasurer Joe Hockey's big tick for Saputo of Canada's $449 million takeover offer for Warrnambool Cheese & Butter Factory Company improves the odds on him also approving Archer Daniels Midland's $3.4 billion bid for GrainCorp, but the politics of the two deals are different.

Saputo's bid was approved unconditionally, Hockey said on Tuesday, adding: "Australia is open for business and we welcome foreign investment when it is not contrary to the national interest."

The question is whether in the case of GrainCorp, Hockey's statement potentially contains one extra letter, the letter S; that as far as GrainCorp is concerned, Australia is open for business and welcomes foreign investment when it is not contrary to the Nationals' interest.

There's been some pro forma hand-wringing about Warrnambool, but nothing to match GrainCorp. Lobbying from ADM and its advisers has been persistent, and Nationals including Warren Truss and Barnaby Joyce have been vocal opponents. Hockey has extended the deadline for a decision as far as he can, to December 17.

ADM is a powerful multinational that has not always behaved. It paid record fines over lysine and citric acid price-fixing in the '90s, for example. The GrainCorp takeover would also extend foreign ownership of an industry that could have produced a multinational of our own.

That opportunity is probably already lost, however, and it is difficult to see anything other than internal Coalition politics getting in the way of ADM's GrainCorp takeover if the Saputo decision is a guide. GrainCorp is a bigger deal, but if the government unconditionally welcomes foreign investment in the dairy industry, it should also welcome foreign investment in the grain industry.

Neither takeover would set a foreign ownership precedent. Japan's Kirin, New Zealand's Fonterra, France's Parmalat, Lactalis group and Kraft of the US are already entrenched in the local dairy industry, and overseas groups including Cargill and Glencore are active in Australia's wheat industry after a series of foreign takeovers.

Neither bid would revolutionise the competitive landscape. Competition issues are more often raised by local mergers, and are in fact raised by one of two local counter-bids for Warrnambool.

ADM's offer has not flushed out local counter offers, which aids its bid for foreign investment approval. Saputo's $8 a share bid for Warrnambool, on the other hand, is being recommended by Warrnambool over two competing local offers: a $7.50 a share cash offer from the Murray Goulburn Co-operative, which also owns about 17 per cent of Warrnambool's shares, and a share and cash bid, valued at about $7.23 per Warrnambool share currently, from Bega Cheese, which is on Warrnambool's register with a shareholding of about 18 per cent.

Murray Goulburn has been styling itself as a potential local national champion in a business dominated by foreigners.

The Australian Competition and Consumer Commission flagged its opposition to a takeover of Warrnambool by Murray Goulburn in 2010 because they compete to buy milk at the farm gate in western Victoria and south-east South Australia, and in its second attempt Murray Goulburn has gone to the Australian Competition Tribunal, where it can argue that the takeover would have national interest benefits that outweigh ACCC concerns.

The tribunal will not make a decision for months, however, and Hockey's quick, positive decision on Saputo's bid implicitly rejects arguments Murray Goulburn made that the Saputo foreign investment decision should be held up until the competition tribunal has ruled on Murray Goulburn.

It is therefore a setback for Murray Goulburn: in its Saputo endorsement, Warrnambool notes Murray Goulburn's regulatory hurdle. Murray Goulburn is hanging in, however, and urging Warrnambool shareholders not to rush their decision. It knows the battle may run long enough to keep it in the game.

Saputo's bid is, for example, conditional on it getting more than 50 per cent, a tough target with Murray Goulburn and Bega holding a combined 35 per cent. A third player, Kirin's Lion group, has also bought a 10 per cent stake to protect a cheese supply deal it has with Warrnambool.

Murray Goulburn and Bega can also raise their offers, and a Bega-Warrnambool merger does not raise serious competition issues.

Hockey's decision has sent a signal, however. He could have extracted an undertaking from Saputo to keep the Australian company's head office in Warrnambool, or Victoria. He could have made Saputo promise to sell cheese into Asia from Australia ahead of its current export source, Argentina. He could have delayed his decision, as Murray Goulburn wanted.

Instead, he cleared Saputo unconditionally. Any unexplained decision on GrainCorp that is less open - one that cuts GrainCorp's eastern seaboard ports out, for example - will be a sign of the Nationals' influence.

mmaiden@fairfaxmedia.com.au