Treasurer rejects US bid for GrainCorp

Corporate eBulletin - 29 November 2013

Summary

The Federal Treasurer, Mr Joe Hockey, has blocked the full sale of Australia's largest grain handler, GrainCorp, to US grain giant Archer Daniels Midland (ADM), stating that the proposed $3.4 billion takeover was contrary to the national interest.

We look at the reasons for the decision, and the status of other foreign takeover bids currently before the Foreign Investment Review Board (FIRB).

 

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GrainCorp bid rejected

Federal Treasurer Joe Hockey has blocked the full sale of Australia's largest grain handler, GrainCorp, to US grain giant Archer Daniels Midland, stating that the proposed $3.4 billion takeover was contrary to the national interest.

Mr Hockey said the bid was one of the "most complex" cases to come before the Foreign Investment Review Board, but concluded after "long and careful deliberation" that there was insufficient competition in the sector to allow the sale to proceed.

Mr Hockey also said allowing the takeover to go ahead risked undermining public support for the foreign investment regime.

Mr Hockey acknowledged the enhanced commitments recently made by ADM in respect of its proposal, including a $200 million dollar investment in agricultural infrastructure, but said that neither these assurances nor the imposition of conditions on the sale would mitigate the national interest concerns associated with the proposed acquisition.

Mr Hockey said he will allow ADM to increase its 19.85 per cent shareholding in GrainCorp to 24.9 per cent.

ADM has expressed disappointment at the decision. ADM Chairman and CEO Patricia Woertz said in a statement, "We are confident that our acquisition of GrainCorp would have created value for shareholders of ADM and GrainCorp, as well as grain growers and the Australian economy."

"We will work with [GrainCorp] to maximise returns on our investment and create value for both companies," Ms Woertz said.

 

The national interest test

The Government reviews foreign investment proposals against the "national interest" on a case-by-case basis, with the Foreign Acquisitions and Takeovers Act 1975 (Cth) providing the legislative framework for the screening regime.

Exactly how the "national interest" is determined is not always clear. The legislation does not provide a methodical definition of the "national interest", nor standards against which it is to be measured.

The Treasurer is permitted to block proposals that are contrary to the national interest or impose conditions to the way proposals are implemented to ensure they are not against the national interest. When making these decisions, the Treasurer relies on advice from FIRB.

In making his decision on the ADM application, Mr Hockey commented that FIRB could not reach a consensus on the issue, and he had to "make a call… in the national interest".

 

Australia still "open for business"

Despite the rejection of the bid, Mr Hockey insisted that Australia is still "open for business", noting that, of the 131 foreign investment applications FIRBhas received since the election in September this year, this is the only one that has been prohibited. He said there was no doubt that foreign investment had underpinned the development of the nation, and the Australian economy must continue to try to attract foreign capital.

“The fact is we need foreign investment, we welcome foreign investment. But it has to be foreign investment that is not contrary to the national interest,” Mr Hockey said.

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Other foreign takeover bids under scrutiny

The rejection of the ADM bid for GrainCorp increases the focus on other proposed foreign takeover bids currently before FIRB. China's Yanzhou Coal is currently awaiting approval to overturn previous undertakings to FIRB and delist the shares of its Yancoal business, while Chinese government-owned State Grid Corporation is seeking to acquire a large stake in energy distribution businesses SP AusNet and Jemena from Temasek. The deadline for concluding the State Grid transaction was recently extended to December 31.

Meanwhile, the three-way tussle for dairy producer Warrnambool Cheese and Butter Factory continues. Mr Hockey granted Canadian food giant Saputo unconditional foreign investment approval in its bid for the company earlier in November. Saputo is one of the rival bidders for WBC, with local operators Bega and Murray Goulburn also making offers for the company that, if successful, would see WCB remain in Australian hands.

 

Fresh debate about the future of Qantas

Mr Hockey created further controversy yesterday, calling for a debate on whether Australia's national airline, Qantas, should be allowed to be owned or controlled by offshore interests.

Mr Hockey told Melbourne radio station 3AW that if Australians wanted Qantas to remain Australian owned and controlled, taxpayers "may have to pay a price".

These comments follow heavy lobbying by Qantas objecting to rival Virgin Australia's $350 million capital injection from its foreign owners Etihad, Air New Zealand and Singapore Airlines.

Under the Qantas Sale Act 1992 (Cth), Qantas must be at least 51 per cent Australian-owned. Any amendment to the Act is likely to be politically difficult, with the Opposition Transport Minister, Mr Anthony Albanese, citing national security and national interest issues as arguments in opposition to any change.


Authors
Sara Hopkins, Lawyer
Timothy Griffiths, Senior Associate
Peter Willcocks, Partner

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