Australia & USA: Australia’s Federal Treasurer prohibits acquisition of GrainCorp by ADM
Australian Federal Treasurer Joe Hockey announced on Nov. 28 that under the Foreign Acquisitions and Takeovers Act 1975 he is prohibiting the proposed acquisition by Archer Daniels Midland Company (ADM) of 100% of the shareholding in GrainCorp Limited (GrainCorp).
“For me to reject this proposal, I had to determine that the acquisition of GrainCorp by ADM is contrary to the national interest. Based on all the available information, I have now made that decision,” Hockey said.
ADM Chairman and Chief Executive Officer Patricia Woertz reacted with disappointment. “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. Throughout this process, we worked constructively to create an arrangement that would be in Australia’s best interests and made substantial commitments to address issues that were important to stakeholders.” Woertz confirmed there were no conditions or undertakings requested of ADM by the treasurer.
Concerning ADM’s plans for its current investment in GrainCorp, Woertz said, “As owner of 19.85 percent of GrainCorp, we will look to work with them to maximize returns on our investment and create value for both companies.”
ADM’s proposal was first lodged with Australia’s Foreign Investment Review Board (FIRB) in May 2013, and as recently as Nov. 26 ADM announced several commitments including investment in Australian infrastructure, guaranteed grain infrastructure access and price caps on grain handling charges at silos and ports.
“The proposed acquisition of GrainCorp by ADM has been one of the most complex cases to come before the FIRB, and it is one of the most significant proposed acquisitions of an agricultural business in Australia’s history,” Hockey said. “In their response to my request for advice on the wider ramifications of this case, the members of the FIRB could not agree on a consensus recommendation in relation to the proposal.
In reaction to Hockey’s announcement, GrainCorp’s Chairman Don Taylor said it was extremely disappointing that the transaction would not be proceeding as planned. “Today’s events will have enduring implications that will be felt not only by our shareholders but by the entire industry. Australian agriculture has been prevented from realizing the potential benefits from the significant capital ADM would have invested in the long term future of the industry. The board remains confident in GrainCorp’s ability to continue to implement our long term strategy, underpinned by our program of strategic growth initiatives and strong market fundamentals.”
In explaining his rejection Hockey noted the fundamental and historic importance of Australia’s grain industry. “The Australian grains industry is an important export industry that has been transitioning through a significant deregulation process since the abolition of the wheat exports single desk in 2008. Since then, deregulation has brought benefits through a significant expansion in the number of bulk wheat exporters, an expansion in our overseas customer base and the construction of new infrastructure.
“But, although a number of new players have entered the market and new infrastructure (such as the Newcastle Agri Terminal) is being built, it is still taking some time for increased competition to emerge.
Owning over 280 up country storage sites and seven of the 10 grain port terminals in New South Wales, Queensland and Victoria, GrainCorp continues to account for a significant share of eastern Australian storage, distribution and marketing of grains. Approximately 85% of eastern Australia’s bulk grain exports are handled through GrainCorp’s ports network.
“Many industry participants, particularly growers in eastern Australia, have expressed concern that the proposed acquisition could reduce competition and impede growers’ ability to access the grain storage, logistics and distribution network. Given that the transition towards more robust competition continues and a more competitive network is still emerging, I consider that now is not the right time for a 100% foreign acquisition of this key Australian business.”
Hockey noted that ADM has shown a commitment to be involved in Australia’s market for the long term. He remarked that in rejecting the full acquisition he could have capped ADM’s ownership stake at its current level. He declined to do so and instead left the door open to future growth. “In fact, to encourage ADM to demonstrate its commitment to the Australian grains industry through its continued investment in GrainCorp, I am inclined, based on current circumstances, to approve any proposals from ADM to increase its shareholding in GrainCorp up to an interest of 24.9 percent. This would also provide a platform for ADM to build stakeholder support for potentially greater participation in the Australian industry as it develops.”
29 November, 2013
