Japanese global trading house Sumitomo Corporation has gained full ownership of Australian bulk grain handler Emerald Grain after acquiring Emerald Agribusiness Group, its joint venture partner since 2010. In an Australian summer that has seen more than its share of political and business commentary surrounding foreign investment in Australian agribusiness, the move further highlights the continued interest of offshore players in this sector.
In this eBulletin, we look briefly at the announcement and other recent agribusiness investment highlights, and we discuss the likely reasons why the acquisition was not hindered by Australia's competition and foreign investment regulatory regimes.
Summitomo obtains 100% of Emerland Grain
On 6 February 2014 Sumitomo Corporation announced that, together with its Australian subsidiary, Sumitomo Australia Pty Ltd, it had acquired its Australian joint venture partner Emerald Agribusiness Group Pty Ltd, the Melbourne based owner of Emerald Grain Pty Ltd. The Emerald companies, now 100 per cent owned by Sumitomo, comprise Australia's fifth largest grain group. Sumitomo initially acquired a 50 per cent share in Emerald Grain from Emerald Agribusiness in 2010.
Foreign investment in Australian agribusiness - recent developments
The Sumitomo announcement comes after an Australian summer that saw intense scrutiny placed on foreign investment in the agribusiness sector.
Most notably, in November 2013 the Federal Treasurer, Mr Joe Hockey, 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 against "the national interest". Initially following the GrainCorp decision there was media speculation that Archer Daniels Midland may turn its sights to Emerald on the back of its failed bid for GrainCorp.
Regulatory controls not a bar to Sumitomo's acquisition
According to statements made by Emerald Chairman, Mr Alan Winney, the deal has not been opposed by Australia's foreign investment or competition bodies.
The Foreign Acquisition and Takeovers Act 1975 (Cth) regulates certain foreign investments in Australia, in particular those that exceed prescribed monetary thresholds, those in sensitive industries, and any investments by foreign government-owned entities. Investments triggering the monetary thresholds require submission of a proposal for review by the Foreign Investment Review Board (FIRB), which examines the proposal and advises the Federal Treasurer whether the investment triggers any objection under the government's policy.
In addition, Australia's competition watchdog, the Australian Competition and Consumer Commission (ACCC), also has powers to block foreign investments where it determines there will be a substantial lessening of competition.
Media reports indicate that both the ACCC and the FIRB had previously stated that they had no objection to the Sumitomo takeover. The lack of any objection from the FIRB may in part be in light of the estimated value of the deal, which by most media accounts appears to be less than the $248 million FIRB mandatory reporting threshold.
Mr Winney has commented that “As appropriate, we have advised FIRB and ACCC and they’ve told us they have no objection to the transaction proceeding - other related approvals have been ratified as well”. It appears that Sumitomo sought prior clearance of the acquisition from both the FIRB and the ACCC as a precaution against an adverse reaction from the authorities upon details of the deal becoming public.
Approaching the ACCC and the FIRB
The lack of any objection to the acquisition of Emerald by Australia's competition and investment overseers is indicative of a proactive strategy by Sumitomo to approach the FIRB and ACCC in advance of the deal.
Under Australia's foreign investment framework, even for acquisitions that do not trigger the mandatory filing obligations with the FIRB, the Treasurer may still have powers to make rulings against an acquisition, such as if it is deemed contrary to the "national interest". Many foreign investors take the proactive step of approaching the FIRB for prior approval.
Similarly, many foreign investors also approach the ACCC in advance of an acquisition to obtain a "no objection" finding from a competition standpoint. While there are no mandatory notification procedures under the Competition and Consumer Act 2010 (Cth), potential acquirers can seek either formal or informal clearance from the ACCC. A successful informal clearance will result in the ACCC providing a letter to the effect that it does not propose to intervene based on available information. On the other hand, a formal clearance results in the deal being immune under statute from prosecution.
In light of the political and media scrutiny of foreign investment in agribusiness in late 2013, it is not surprising that Sumitomo approached the ACCC and the FIRB well prior to proceeding with the Emerald acquisition. Future foreign investors in Australia's ever-sensitive agribusiness sector would be wise to take note.