Mixed messages add to the confusion
Australian ambassador to the US Kim Beazley scrambled in the 48 hours before the Abbott government's announcement that it had blocked Archer Daniels Midland's $3.4 billion takeover of GrainCorp.
He had to deliver on a commitment in Australia's free trade agreement with America that the US government be given the opportunity to directly discuss potential takeover bans.
An exchange of letters between the Howard government and the US in 2004 that is part of the free trade agreement states that if a proposed US investment raises "serious concerns" that could result in it being blocked, modified or unwound, the Australian government will "inform the government of the United States of the reasons ... [and] provide the US government an opportunity to consult with the government of Australia on the matter".
Beazley was mobilised late because the government was alerted to the 2004 commitment only last week. Sources say he satisfied the conditions of the trade agreement side-deal.
GrainCorp's shareholders were in the dark as the high-level contact occurred, and on Friday they bore the burden of Treasurer Joe Hockey's decision to kill the bid.
GrainCorp's shares were trading at $8.70 before ADM offered $11.75 a share in October last year. It finally offered $13.20 a share, a 50 per cent premium. GrainCorp's shares fell to a low of $8.26 on Friday after the bid was rejected, and were 22 per cent down at $8.72 as trading drew to a close, in line with their price before ADM turned up.
Hockey also says that although he is blocking a full takeover of GrainCorp by ADM, it is welcome as an industry participant, and that he is "inclined" to allow the group to build the 19.9 per cent stake in GrainCorp it acquired on market during its offer, to 24.9 per cent.
That would occur on-market: after blocking a bid that contained a huge control premium, the Treasurer is, in other words, now ready to let ADM move to a position of influence without paying a premium at all.
The Australian dollar slipped by about a half a US cent on Hockey's announcement, but there won't be a general market sell-off. These were predicted when Peter Costello vetoed Shell's takeover of Woodside in 2001 and when Wayne Swan blocked the Singapore Exchange's takeover of the ASX in 2011, and they also failed to materialise.
The cases for blocking the Woodside and ASX takeovers on national interest grounds were fairly clear, however.
Shell was developing other liquefied natural gas projects in the region. If it owned Woodside, Australia's North-West Shelf LNG project might have been delayed, and other projects given priority. A takeover of the ASX would have put one of Australia's main platforms for mobilising capital into the hands of the operator of a competing capital market, and regulators were unsure about the impact on the financial system.
ADM did itself no favour by being a late mover. Two overseas bids for local grain handlers had already been waved through, and the GrainCorp deal would have doubled foreign ownership of the industry to about 70 per cent.
The national interest case that Hockey offered up on Friday was, however, less conclusive than the ones Costello and Swan made. It was also politically loaded, because elements of the Coalition, including the Nationals and some country-based Liberal MPs, wanted the deal blocked. International investors may be more cautious as a result - less certain about what future decisions will be.
Swan said in 2011, for example, that his decision to block the ASX takeover was based on "unambiguous and unanimous advice" from the Foreign Investment Review Board that the deal was contrary to the national interest.
In contrast, an FIRB report on the GrainCorp bid that reached the Labor government just as it was going into pre-election mode is believed to have been broadly supportive. After he took over as Treasurer, Hockey asked the board to consider "wider ramifications" of the takeover. It failed to reach a consensus on those matters.
In 2011, Swan detailed what the national interest was in the case of the ASX. There were concerns about not having full "regulatory sovereignty" over the ASX, and about the impact on Australia's capital markets.
Hockey said on Friday the grain industry needed more time to transform itself after being deregulated in 2008. He also said industry participants, including growers in eastern Australia where GrainCorp operates, had "expressed concern that the proposed acquisition could reduce competition and impede growers' ability to access the grain storage, logistics and distribution network".
The competition implications of the takeover had, however, already been assessed by the the Australian Competition and Consumer Commission. It was not concerned.
Hockey says the issues he considered were broader, and that one thing he took into account was how the takeover would affect support in the "broader community" for foreign investment.
That's a new factor in foreign investment decisions, and a new uncertainty. If it continues to be applied, more foreign investment proposals may be blocked, despite the government's insistence that it is "open for business".