We assess the attempted takeover of Graincorp by Archer Daniels Midland and the controversial decision by the Australian Treasurer to block the bid. Was the bid contrary to Australia's national interest and what does that mean for other prospective foreign investors? Our simple guide shows how to minimise the risk of an agribusiness acquisition being blocked.
In October 2013, Treasurer Joe Hockey told the American Australian Association that 'Australia is open for business, open for investment and is going for growth'. A month later, he created confusion over Australia's foreign investment policy by blocking Archer Daniels Midland's proposed AU$3.4 billion takeover of GrainCorp Limited. Changes to Australia's foreign investment laws – announced but not yet legislated – have added to the prevailing mood of uncertainty. Is Australia really open for business?
The Treasurer's decision on ADM and GrainCorp has been widely criticised as a purely political move. He defended his decision, stating that, of the 131 significant foreign investment applications received for his approval, ADM's bid was the only one not to receive approval. Australian businesses and international investors are still taking stock.
The story of the bid
In issue 2 of Cultivate, Shane Bilardi and Kirsten Gourd described the approvals process (see facing page) to which all foreign investment agriculture proposals are subject.
The ADM takeover bid went through that process, but did not come out unscathed.
ADM commenced its bid for GrainCorp well over a year ago, acquiring a 10 per cent interest in GrainCorp in late October 2012. Over the next two months, ADM made two takeover offers; both were rejected by GrainCorp's board. On May 2, 2013, ADM confirmed a new takeover bid at AU$13.20 per share. Around the same time, ADM lodged its proposal with FIRB (Australia's Foreign Investment Review Board). The offer was backed by the GrainCorp board and approved by the Australian Competition and Consumer Commission on June 27.
Over the following months, ADM withdrew and re-submitted its application to FIRB a number of times against a backdrop of political criticism of the proposed takeover. In particular, there was strong opposition from the National Party (the junior partner in Australia's conservative government, which has a strong farming constituency); some sections of the National Party expressed concern about control of the Australian grain industry being in foreign hands. Key players in the agribusiness industry were also vocal about the takeover, with grain growers arguing that the takeover would limit their access to grain silos.
On October 4, the Treasurer signed an interim order extending the time period for a decision up to December 17. In the meantime, industry stakeholders continued to voice their concerns, including questions over future access to grain infrastructure. In response, on November 26, ADM announced a package of additional commitments. These included an extra investment of AU$200 million to strengthen Australian agricultural infrastructure, price caps on grain-handling charges at silos and ports and a commitment to an openaccess regime for port services. Either the sweetened offer failed to placate the various stakeholders or it came in too late, because the Treasurer announced, on November 29, 2013, that he had blocked the bid on the basis that it would be contrary to the national interest.
Changes to the foreign investment laws
The current Australian Government was elected in September 2013 (halfway through ADM's bid process). In the lead-up to the election, it announced a number of potential changes to Australia's foreign investment laws, including the possibility of lowering the monetary thresholds from AU$248 million to AU$15 million for certain acquisitions in the agricultural sector.
There have also been calls for the introduction of a spatial threshold for agricultural land (similar to the fivehectare threshold that applies in New Zealand) and for the development of a national foreign ownership register for agricultural land (similar to the system already in place in the State of Queensland for all land and in the United States).
Foreign investment regulations: The facts
The Treasurer gave various reasons for his decision to block the bid. One was the current state of the Australian grain industry, which is still in a period of transition following deregulation and the move away from the 'single desk' wheat export monopoly (abolished in 2008). The Treasurer also noted the concerns of industry participants that the acquisition by ADM might reduce competition and hinder growers' access to GrainCorp's grain storage, logistics and distribution network, which handles around 85 per cent of eastern Australia's bulk grain exports.
The Treasurer also referred to the widespread criticism of the proposed takeover from stakeholders and the broader community. He decided that allowing the takeover to proceed 'could risk undermining public support for the foreign investment regime and ongoing foreign investment more generally' – and that such an outcome would not be in the national interest.
A call for more clarity
Some commentators interpreted the decision as a message to foreign investors that Australia is not open for business. The US State Department, in particular, expressed its disappointment, noting that the United States 'is the largest foreign direct investor in Australia'.
Should foreign investors be concerned that Australia is closed for business? We think not. The ADM/GrainCorp decision needs to be seen very much in context; in our view, the role played by GrainCorp in eastern Australia's bulk grain exports is a significant factor in the decision to block the bid.
There is a real sensitivity around agribusiness assets in Australia, but that does not mean that foreign investors are blocked from acquiring them. In November 2013, for example, the Treasurer approved the bid by the Canadian dairy processor, Saputo, to acquire an Australian dairy processor. This decision – made in the face of significant pressure from local counter bidders – was given well within the 40- day review window.
There is a need for far greater certainty in Australia's foreign investment approval process, particularly around definitions of Australia's national interest and matters that might affect it.
The Government has to move fast to legislate the changes to the approval process relating to agricultural acquisitions which were announced before its election in September 2013.
A guide to minimising deal risk
Foreign investment approval should not be considered a 'rubber stamp' exercise. A more strategic approach will help to manage the process effectively.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.