Kidman contemplates its next move

HISTORIC pastoral company S.Kidman and Company says a ruling by the government to block foreign buyers will remove the highest-priced bidders from its sale.

Treasurer Scott Morrison announced the decision this morning, based on Foreign Investment Review Board (FIRB) assessment of the proposed sale.

In his announcement, Mr Morrison said a key factor was that some of Kidman’s holdings (60 per cent of 8000 square kilometre Anna Creek Station) lie within the Woomera Prohibited Area (WPA), the South Australian weapons testing range.

"Given the size and significance of the total portfolio of Kidman properties along with the national security issues around access to the WPA, I have determined, after taking advice from FIRB, that it would be contrary to Australia's national interest for a foreign person to acquire S. Kidman and Co. in its current form," Mr Morrison said.

S. Kidman’s chief executive, Greg Campbell, said some Australian interests had bid on S. Kidman, but none were in the highest price bracket.

“The decision is basically saying that on the present structure, the Kidman family is not able to sell to the highest bidder,” Mr Campbell said.

Hours after Mr Morrison’s announcement, he wasn’t sure how Kidman would proceed.

Until this morning, he said, the sale “was definitely at the pointy end, with final-stage negotiations”.

Those negotiations were reported to be with Chinese investment firm Genius Link Asset Management. The firm is understood to have upped the stakes on rival company Shanghai Pengxin, which made a $350 million bid for Kidman.

“I’m not at liberty to identify investors,” Mr Campbell said, “but I understand that this was a rejection of all foreign investors, so it’s not making a comment on their origins.”

Kidman is hoping for some wriggle room in Mr Morrison’s determination - the possibility that the Woomera portion of Anna Creek can be split out of the sale, or that foreign bidders can incorporate Australian interests into their bids.

The company knew the Department of Defence had a right of veto over purchases within the Woomera rocket range, but didn’t expect the issue to block the sale.

The Anna Creek lease is in the WPA’s “Green Zone”, or infrequent use zone. Defence holds exercises in the zone every couple of years, Mr Campbell said, and Kidman is given notice if they are likely to disrupt company activity.

“We always thought that on fair consideration it would be approved, but there are obviously security considerations that we’re not aware of.”

“It’s worth noting that the Kidman pastoral operations pre-date Woomera by 50-odd years, and we’ve operated successfully in co-operation with the rocket research and defence activities for 50 years.”

Mr Campbell is hopeful that there is a solution similar to that arrived at by OZ Minerals, which ran into the same blockage in 2009 when it attempted to sell its Australian mining portfolio to China Minmetals.

“The Commonwealth rejected that sale because the Prominent Hill mine, one of those assets, lay within the red zone of the Woomera rocket range,” Mr Campbell said.

“After some negotiation the Prominent Hill mine was carved out of the portfolio of assets, and the rest of the portfolio was sold to China Minmetals.”

“China Minmetals is a Chinese State-owned enterprise, and the Prominent Hill mine is in the Red Zone, the inner zone of the Woomera range.”

“In Kidman’s case, its assets are in the outer ‘infrequent use’ Green Zone, and all our potential buyers are independent companies - they are not connected to governments. So our circumstances are a little more benign than the OZ Minerals situation.”

Mr Campbell also questions whether the sale should be blocked on  competition grounds.

“Some of our colleagues in the industry, with much bigger cattle herds than Kidman, are foreign owned or majority foreign-owned, but don’t have the same land area.”

“Kidman have become arid zone specialists, and have a large footprint in the arid zone to host its herds. Some of our colleagues are in higher rainfall zones, and have a bigger presence in the cattle industry by way of their herds - and they are foreign-owned without any concerns. So I don’t think it’s a competition issue.”

And, he added, all Kidman land is leasehold. “It’s not outright ownership: the State and Commonwealth governments have a range of rights over the land.”

Right now, Mr Campbell said, the challenge for Kidman is to see whether there is a way through the Commonwealth ruling.

“The Ernst & Young sales team and Kidman will be seeking further information from the Commonwealth over the next week or so, as to some of the specifics, and to see whether there is some negotiating room.”