Australia rejects ADM’s GrainCorp bid

Finding new players in Australia’s grain trade haven’t yet fulfilled the promise of more competition, that country’s treasurer has shot down a takeover of GrainCorp by U.S. agrifood giant ADM.

Treasurer Joe Hockey on Thursday announced an order prohibiting the proposed A$2.8 billion takeover, a first for that country’s Liberal-led government after 131 straight approvals of significant foreign acquisitions.

Australia’s deregulation of its single desk for wheat exports in 2008 “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,” Hockey said in a statement.

However, he said, “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.”

Said players include Viterra, which bought control of ABB Grain in 2009, and Cargill, which in 2011 bought AWB’s grain business from Calgary-based Agrium. The NAT port facility, being built by independent players near Carrington, is expected to be commissioned next month.

With over 280 country storage sites and seven of 10 grain port terminals in New South Wales, Queensland and Victoria, GrainCorp has a “significant share” of eastern Australian grain storage, distribution and marketing and handles about 85 per cent of the region’s bulk grain exports, Hockey noted.

Furthermore, he said, farmers and other industry players are concerned that an ADM takeover “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 per cent foreign acquisition of this key Australian business.”

On top of that, he said, given the “high level of concern” from stakeholders and Australians in general, allowing the ADM play to go ahead “could risk undermining public support for the foreign investment regime and ongoing foreign investment more generally,” which in turn also “would not be in our national interest.”

Hockey in early October had already extended the statutory time period for a decision on the GrainCorp bid, with a new deadline of Dec. 17.

His decision follows ADM’s pledge Wednesday that it would put A$200 million into Australian grain-handling infrastructure. It also pledged to sign onto an Australian industry protocol for reporting wheat stocks at its bulk grain storage facilities.

Hockey said his decision was made “in full knowledge of such further commitments.”

“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,” ADM CEO Patricia Woertz said Thursday after Hockey’s announcement.

There were “no conditions or undertakings requested of ADM” by Hockey’s office, she added.

“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.”

“Reviewing allocations”

The main Canadian asset at stake in any play for GrainCorp is Canada Malting, which operates malt plants at Calgary, Montreal and Thunder Bay, plus 10 barley elevators in the three Prairie provinces.

The Calgary company became part of GrainCorp through the latter firm’s 2009 takeover of United Malt Holdings (UMH), now named GrainCorp Malt.

Illinois-based ADM is left holding 19.85 per cent of GrainCorp, and “will look to work with them to maximize returns on our investment and create value for both companies,” Woertz said Thursday.

Hockey said Thursday he won’t continue to cap ADM’s stake in GrainCorp at its current level, as the country’s Foreign Acquisitions and Takeovers Act allows.

Rather, he said, “to encourage ADM to demonstrate its commitment to the Australian grains industry through its continued investment in GrainCorp,” he would be inclined to approve proposals from ADM to boost its GrainCorp stake up to 24.9 per cent.

In the wake of Hockey’s decision, Woertz said ADM is “reviewing our capital allocations, including shareholder distribution alternatives, as part of our 2014 business plan process currently underway.” — Network

Related story:
ADM, GrainCorp settle in for wait on takeover approval, April 26, 2013


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