Leaderless GrainCorp is lost in the maize

The resignation of GrainCorp’s chief executive Alison Watkins provides an insight into how confident she and the company were that it would be taken over by Archer Daniels Midland, and how destabilised GrainCorp has been by Joe Hockey’s decision last week to block the bid.

Watkins had planned to announce her resignation to take up the chief executive’s role at Coca-Cola Amatil at the point at which control passed to ADM. Instead, Hockey’s surprise decision flushed out the announcement of her resignation, leaving GrainCorp without a new owner or a chief executive.

It’s no great surprise that Watkins had been targeted by CCA, given that until Friday it had appeared near-certain that ADM would end up owning GrainCorp.

Watkins is regarded as a first-rate executive whose three-and-a-half-year term as GrainCorp’s chief executive has been both very active and successful. She has had a stint as CEO of the Berri juice business, as well as a number of prestigious non-executive directorships, including ANZ Banking Group and Woolworths. Her experience is well-suited to the CCA role.

She said today that she felt it was in the best interests of GrainCorp to announce her departure and allow the board to find a new chief executive, although she will remain at GrainCorp until January. GrainCorp’s chairman, Don Taylor, will be executive chairman until her successor is in place.

Apart from the $1 billion difference between the value of the ADM bid and GrainCorp’s current market capitalisation, the Hockey decision to block the ADM bid also leaves the group leaderless.

Both Taylor and Watkins took issue with a core element of Hockey’s arguments in support of his decision, pouring scorn on the notion that GrainCorp’s grain storage and handling infrastructure was a monopoly.

Taylor said there was enormous competition with the network, with 50 per cent of the east coast grains coming nowhere near its depots. Graincorp only has to be out of the market “by 50 cents” for the grain to go to competitors.

The GrainCorp leaders have made it clear they believe that Hockey’s reasons for rejecting the ADM proposal were based on false premises.

Watkins also argued that GrainCorp’s ports – it operates seven of the ten east coast grain ports – were regulated and faced competition. It had been working on an industry code of conduct that would only have been introduced if the competition concerns were assuaged.

She said GrainCorp shared ADM’s shock and disappointment at Hockey’s decision.

“We feel that it is an opportunity lost for the industry and ultimately will be to the detriment of pursuing the many opportunities we have in Australia.”

Had ADM’s offer (which had been endorsed by the GrainCorp board) succeeded, ADM had pledged to invest $500 million in GrainCorp’s infrastructure, particularly in rail infrastructure, over the next few years.

Without access to ADM’s balance sheet and with its share price punctured by the decision – it is now about 30 per cent lower than it was a fortnight ago – GrainCorp won’t have the capacity or the cost of capital to make investment of that magnitude.

Hockey’s acceptance of the argument of some growers, and his National Party colleagues, carries a big price-tag in terms of foregone opportunities and capital.

Despite the shock setback last week and its longer term implications for GrainCorp and the industry’s development, Watkins will at least leave GrainCorp in a solid position.

During her tenure she significantly diversified the group away from its exposure to the volatile grains business and also made big improvements to the underlying business platform.

It is a measure of how well-regarded she is that she leaves a company that today has a market capitalisation to become chief executive of one valued by the market at more than $9 billion, succeeding one of the more-respected CEOs in the country.

Watkins will relinquish her ANZ Bank board seat to allow herself to be devoted solely to “getting up to speed” in her new role. Coincidentally, CCA’s chairman, David Gonski, is being widely touted as the next chairman of ANZ Bank, succeeding John Morschel when he retires within the next year or so.