The Distillery: Elders grief

Following a big day of news in the agriculture sector yesterday, the commentariat has focused its attentions on the sudden departure of Elders boss Malcolm Jackman and the latest manoeuvrings from Archer Daniels Midland over GrainCorp.

For one, the ADM move represents a last ditch effort against a seemingly growing tide of political resistance, with all scribes reasoning Treasurer Joe Hockey should be giving the deal his blessing on December 17. Still, this year has been a constant reminder that political games often get in the way of smart decisions.

At Elders, meanwhile, no one is shocked by Jackman’s departure even if it did come abruptly. Commentators look back at his achievements and find a mixed record in his five-year tenure. Elders has survived the storm, but shareholders have the right to feel aggrieved given the company is a shell of what it once was.

First to ADM, Fairfax’s Malcolm Maiden contends the American group’s decision to inject more cash to improve GrainCorp infrastructure is a shrewd one. Indeed, it may offer the internally divided Coalition a way out of a mess that threatens to either damage the Nats-Libs alliance or hurt perceptions of Australia’s openness to foreign investment.

“The only way through that I can see is for both sides in the Coalition to agree that ADM has actually done the government a favour, by serving up undertakings that everyone can acknowledge make the takeover acceptable, perhaps with a few final tweaks. It might happen, and hopefully will - but you certainly wouldn't say at this stage that it is guaranteed.”

The Australian’s John Durie notes that ADM is well aware of the forces moving against it, which meant yesterday’s move “smacked of desperation”. Even so, the pressure is mounting on the Abbott government, whose honeymoon period is well and truly over.

“At the outset it should be said if Joe Hockey is a rational person he would approve the bid. The Treasurer is a politician so he may chose not to and, while this columnist and others will raise blue murder on any rejection, the facts suggest life will go on and foreign investment will continue to flow into the country. It's just that the Abbott government would get one more black mark and make people wonder just why and what they voted for.”

The Australian Financial Review’s Chanticleer columnist Tony Boyd agrees there is no rational thought behind criticism of the ADM bid, but sees great risk of it getting blocked regardless.

“ADM’s Ian Pinner has listened to grain growers and delivered more than what they asked for in his last ditch package to win control of GrainCorp. It could be argued that Pinner should have listened more intently earlier and responded more quickly to grower demands. But his real problem appears to be politics rather than economic reasoning. The noises coming out of Canberra are ominous and point to a rejection of the bid.”

Business Spectator’s Stephen Bartholomeusz, meanwhile, suggests the ADM concessions should be the end of the issue, but whether it can overcome the politics of the decision remains an open question.

“The commitments given by ADM, both in terms of the capital and the behavioural and pricing restrictions, could make Hockey’s job easier. All he really needs to do is to convert them into formal and binding undertakings to the government via the Foreign Investment Review Board process that ends at his desk. It should be approved.”

Indeed, it should be given the green light. But the right choices in politics in recent years have often been clouded by the easy options. For the Coalition, blocking the bid is the easy way to diffuse a growing internal battle.

We don’t have long to wait until we know the choice Hockey has made.

Moving to Elders, the exit of Jackman makes sense in terms of where the company is heading, even if it may have occurred a little prematurely, according to the AFR’s Michael Smith.

“Elders wants operational experience in the agriculture sector to be the focus for its leadership team as the company enters a new phase as a pure-play ag company rather than the skills Jackman brought to the table as a financial manager. Still, any chief executive who resigns immediately always raises suspicions and it is hardly an ideal time in the company’s history for a leadership change.”

Smith says Jackman may have saved the company from the brink of disaster, but still leaves it a shadow of its formerly strong self.

Business Spectator’s Bartholomeusz adds more detail on the extent of the fall from its pre-GFC heights, which likely leaves Jackman relieved to move on.

“It’s been five thankless years of struggling to keep the venerable pastoral house alive – selling off assets, absorbing massive losses and write-downs – to keep the bankers from stepping in… The Elders share price had begun to dive even before he took on the role in late September 2008. Having traded at more than $24 a share in 2007 pre-crisis, the share price had halved by the time Jackman accepted the job. As the crisis deepened a year later, its shares were valued at about $2.30. Today they trade at 11.5 cents.”

Likewise, Fairfax’s Elizabeth Knight believes Jackman had a major win in keeping the business alive though, while much of the troubles he faced were inherited, he isn’t blameless in the decline of the business.

“It is the age-old story of previous regimes overpaying for assets while accumulating a conglomerate using too much debt. The trouble is that during Jackman's tenure the quagmire got deeper. The various businesses that were put up for sale as part of the corporate restructuring were not performing, and thus their value diminished with time.”

One couldn’t blame Jackman for having a glass of champagne last night on the back of five years of lurching from one mess to another. For Elders shareholders, however, there’s very little to celebrate.

Elsewhere, the Bureau of Resources and Energy Economics has released its latest mining investment forecasts and, according to the Herald Sun's Terry McCrann, it may foretell of the official end of the mining boom. By McCrann’s analysis, we will go over the cliff in terms of mining investment in 2016.

Let’s hope the non-mining economy can find some life before then.

Also in resources, the AFR’s Matthew Stevens spotlights new details of regulatory issues with the Rio-controlled Turquoise Hill. It seems Mongolian, UK, Canadian and US regulators are all looking closely at the company, which can’t be good news.

Meanwhile, the AFR's Philip Baker looks at Australian equities and finds that they may be a little 'toppy'. Could a correction be imminent?

One suspects it might have to at least wait until next year given markets typically perform well in and around the festive season.

Finally, The Australian’s David Uren discusses the challenge of reining in surging health costs without causing political damage, while his colleague, Glenda Korporaal, notes that despite the business mood remaining “disappointingly flat”, Queensland Premier Campbell Newman is upbeat that his state is turning the corner.

A return to strong growth in Queensland could be just the kick-start the country’s economy needs, but it’s too early to tell if Newman is selling the green shoots before their ready to sprout.