TREASURER Joe Hockey has rejected US agribusiness giant Archer Daniels Midland's (ADM) $3.4 billion bid to takeover eastern Australia's biggest grain handler, GrainCorp.
Mr Hockey announced his decision at a press conference this morning in Sydney, saying that now was "not the right time" for a 100 per cent foreign acquisition of a key Australian business like GrainCorp.
However, Mr Hockey said he was inclined to approve any proposals from ADM to increase its shareholding in GrainCorp up to an interest of 24.9 per cent.
"For me to reject this proposal, I had to determine that the acquisition of GrainCorp by ADM is contrary to the national interest. Based on all the available information, I have now made that decision," Mr Hockey said.
Mr Hockey said he made his decision after long and careful deliberations, and described the proposed acquisition of GrainCorp by ADM as "one of the most complex cases" to come before the Foreign Investment Review Board (FIRB).
He said in response to his request for advice on the wider ramifications of this case, the members of the FIRB could not agree on a consensus recommendation in relation to the proposal.
Mr Hockey said of the 131 significant foreign investment applications the Abbott government had dealt with since coming to office, this was the only application the government had prohibited.
'Not the right time'
"The Australian grains industry is an important export industry that has been transitioning through a significant deregulation process since the abolition of the wheat exports single desk in 2008," he said.
"Since then, deregulation 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.
"But, 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.
"Owning over 280 up-country storage sites and seven of the ten grain port terminals in NSW, Queensland and Victoria, GrainCorp continues to account for a significant share of eastern Australian storage, distribution and marketing of grains.
"Approximately 85 per cent of eastern Australia’s bulk grain exports are handled through GrainCorp’s ports network.
"Many industry participants, particularly growers in eastern Australia, have expressed concern that the proposed acquisition 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.
"A further significant consideration was that this proposal has attracted a high level of concern from stakeholders and the broader community.
"I therefore judged that allowing it to proceed could risk undermining public support for the foreign investment regime and ongoing foreign investment more generally. This would not be in our national interest.
"I note that, earlier this week, ADM publicly released details of enhanced commitments in respect of its proposal. ADM had foreshadowed these to me and the FIRB some time ago. The FIRB consideration and my decision have been made in full knowledge of such further commitments.
"The Act provides scope for me to impose conditions when making foreign investment decisions. I carefully examined this option, but consider that there are no appropriate conditions that would mitigate the national interest concerns associated with the proposed acquisition.
"Indeed, imposing conditions would have meant introducing additional regulation for one market participant, and this would not be in the interests of the Australian grains industry.
"Moreover, imposing enduring conditions on just one participant in a changing industry would limit the capacity of that participant to respond to a changing environment.
"ADM has advised me that it wishes to be involved in the Australian market place for the long term.
"ADM currently owns 19.85pc of GrainCorp. It was open to me, under the Act, to continue to cap ADM’s shareholding in GrainCorp at its current level. I have decided not to do so.
"In fact, to encourage ADM to demonstrate its commitment to the Australian grains industry through its continued investment in GrainCorp, I am inclined, based on current circumstances, to approve any proposals from ADM to increase its shareholding in GrainCorp up to an interest of 24.9pc.
"This would also provide a platform for ADM to build stakeholder support for potentially greater participation in the Australian industry as it develops."
Reacting to Mr Hockey's decision, ADM released a statement saying it was obviously disappointed.
"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,” ADM chairman and chief executive Patricia Woertz said.
“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."
Ms Woertz confirmed there were no conditions or undertakings requested of ADM by Mr Hockey.
"As owner of 19.85pc of GrainCorp, we will look to work with them to maximise returns on our investment and create value for both companies,” she said.
Ms Woertz also commented on ADM’s business planning in light of today's announcement.
"We are reviewing our capital allocations, including shareholder distribution alternatives, as part of our 2014 business plan process currently underway," she said.
"We have an attractive pipeline of opportunities that are consistent with our focus on value creation and fit our strategy for profitable growth.”
Today's decision comes just days after ADM made a late attempt to regain some positive momentum in its bid to win approval for its GrainCorp takeover proposal, boosting its earlier $50m extra spending commitment on grain storage infrastructure to include more cash for GrainCorp's handling network and rail links.
More to come