- The Australian Government blocked ADM’s proposed takeover of GrainCorp under Australia’s foreign investment rules - the transaction now joins the very small number of takeover deals which have failed to secure foreign investment approvals.
- It is likely that the political dimension had an influence on the Treasurer’s decision to block the proposed transaction.
- The decision highlights the need for bidders in high profile deals in sensitive industries to proactively manage stakeholders, the media and interest groups, as well as to address substantive national interest issues.
The Commonwealth Treasurer’s decision on 29 November 2013 to block Archer Daniels Midland’s (ADM) proposed acquisition of GrainCorp Limited (GrainCorp) has come as a surprise to many. In doing so, the ADM takeover joins the very small number of takeover transactions which have been blocked under Australia’s foreign investment rules.
The Treasurer’s decision finally ends more than 6 months of intense media speculation over the proposed transaction and its potential impact on the Australian economy and the grains industry.
ADM’s takeover of GrainCorp required notification and approval under the Foreign Acquisitions and Takeovers Act 1975 (the FATA). The FATA gives the Treasurer broad powers to issue orders prohibiting acquisitions of Australian companies and businesses exceeding $248 million where the Treasurer considers the transaction to be contrary to the national interest.
GrainCorp currently handles approximately 85% of eastern Australia’s bulk grain exports. It owns over 280 up-country storage sites and seven (out of ten) grain port terminals in New South Wales, Queensland and Victoria. It is currently Australia’s largest listed agribusiness.
The Nationals and a number of farmer interest groups had been strongly opposed to the transaction over fears that it would restrict competition by excessively raising prices for access to ports and up-country storage to advance the interests of their shareholders. This is despite ADM committing to open access arrangements at GrainCorp’s up-country silos and ports and $250 million of additional capital investment in supply chain infrastructure.
National interest rationale
The Treasurer’s decision was ostensibly made on competition grounds. He formed the view that the transaction may stifle the emergence of additional competition in grain storage and port facilities in eastern Australia. He also acknowledged that the high level of concern expressed from stakeholders and the broader community was a significant factor in his decision.
The competition basis for the decision is in contrast to the views of Australia’s competition regulator, the Australian Competition and Consumer Commission (ACCC). The ACCC had examined the transaction and concluded that the transaction would unlikely substantially lessen competition as the merged entity would continue to face competition from a number of sources. In forming this view, the ACCC conducted a public review process involving consultation with grain growers, industry bodies and competitors.
Of relevance to the competition analysis is that ADM does not currently have any significant presence in eastern Australia grain handling and so the transaction would lead to no increase in ownership concentration of grain handling infrastructure. In addition, GrainCorp is subject to an ACCC approved Access Undertaking which requires it to allow third party access to its port terminals. ADM would remain subject to this Access Undertaking (and any replacement) following its acquisition of GrainCorp. Accordingly, approving (or blocking) the transaction should have no discernable impact on competition.
Some commentators have noted the political dimension to the ADM decision, drawing a link between the Treasurer’s decision and the political lobbying from farmer groups and the Nationals. While it is unclear how strongly the political dimension influenced the Treasurer’s decision, it is safe to say that it likely played a role. The Treasurer implicitly acknowledged this by noting that allowing the transaction to proceed could have risked undermining public support for the foreign investment regime and ongoing foreign investment more broadly.
Implications of decision
While the decision is disappointing to some within the business community, it is unlikely to have significant precedent value in terms of the FATA’s ‘national interest’ test.
The decision does however highlight the need for bidders in high profile deals in sensitive industries to be able to proactively manage stakeholders, the media and interest groups, as well being able to address substantive national interest issues.
It would also have been possible for the Treasurer to approve the transaction subject to appropriate conditions to address any perceived competition concerns.