ADM Moves to Dampen Opposition to A$3Bln GrainCorp Bid

   By Rob Taylor 
 

CANBERRA, Australia--U.S. agribusiness giant Archer Daniels Midland Co. (ADM) moved to dampen political and grower opposition in Australia to a planned acquisition of grain handler GrainCorp Ltd. (GNC.AU), as a deadline nears for authorities to rule on the 3.0 billion Australian dollar (US$2.9 billion) deal.

ADM's offer is a litmus test for new Prime Minister Tony Abbott's commitment to attract more foreign investment and reinvigorate the country's $1.5 trillion economy as a decadelong resources boom ends.

Australia's Foreign Investment Review Board, or FIRB, is due to decide by Dec. 17 whether to approve the deal, shackle it with conditions, or block it altogether. As part of that review, the watchdog will decide whether the deal is in Australia's national interest.

"We think that the GrainCorp business, the model, the way that the management team have developed it and they operate it today, is very good," ADM's grains head Ian Pinner told Australian state radio Wednesday.

Australia exports about 70% of its food output, much of it to Asia, which the United Nations believes will be an engine for world food demand growth through 2050.

Trading houses have been pushing hard into Australia's grain sector since the breakup of the government's central exporting agency in 2008. A deal for GrainCorp would see 60% of wheat shipments from Australia controlled by three companies--ADM, Glencore Xstrata PLC (GLEN.LN) and Cargill Inc. It would also put almost all of the country's export infrastructure under foreign ownership.

Growers have expressed concern they could be hit by higher grain-handling fees should the ADM purchase proceed. Opposition has also come from the government's junior coalition member, the rural-centered National Party, which fears the deal could hand control of Australia's grains industry to foreign interests.

However, Mr. Pinner said farmers would benefit from wider access to foreign markets through ADM's global network.

"We want to see the growers thrive," he said. "What we're looking to do is bring additional benefits to growers through investment in the infrastructure, through improving the supply chain efficiency, and opening up this global market."

Most foreign investment deals are approved by Australian authorities, especially those involving companies based in the U.S., a long-time ally of the country. Still, some recent acquisitions have drawn extra scrutiny from regulators or sparked opposition from politicians.

Barnaby Joyce, now agriculture minister in Mr. Abbott's government, was a vocal opponent of last year's sale of giant Australian cotton farm, Cubbie Station, to a group including China's Shandong RuYi Scientific & Technological Group Co. Ltd.

Chinese investment in Australia is also in the spotlight as state-owned Yanzhou Coal Mining Co. (YZC) bids for full control of its Australian arm Yancoal Australia Ltd. (YAL.AU). That's despite Yanzhou's earlier commitment to regulators to own no more than 70% of the unit's equity.

"On foreign investment, I will not be bullied or intimidated by anyone when it comes to dealing with the national interest," Australian Treasurer Joe Hockey, who oversees FIRB, said at a media conference Wednesday.

Mr. Hockey is leaning toward approving ADM's bid for GrainCorp with a range of conditions, including a cap on grain-handling fees for Australian growers and competitor access to GrainCorp port facilities and grain silos, the Australian Financial Review newspaper reported Wednesday, citing government lawmakers. The Treasurer's office declined to comment.

A green light could put Mr. Hockey at odds with cabinet colleagues. Deputy Prime Minister Warren Truss, who leads the Nationals, at the weekend buoyed opponents of the deal by appearing to reject even a conditional sale, saying it was "very important for Australia to maintain control of its own food security".

ADM's Mr. Pinner said his company respected the passion being shown in Australia around agriculture and the GrainCorp assets, reflected in recent surveys by the influential thin-tank the Lowy Institute showing Australian are increasingly concerned about foreign ownership of local assets, particularly by Chinese buyers.

"We are not going to change the way GrainCorp operates, and in fact we want to improve it," Mr. Pinner said of the company, which handles much of the grain produced in Australia's most heavily populated eastern states.

He rejected the notion that a deal would lessen competition, as GrainCorp controlled only seven of 11 bulk terminals on the east coast. One of those outside its control was overseen by Australia's competition regulator.

"In addition to that, 25% of the grains and oilseeds that are exported off the east coast go by container, 2-3 million tons a year … not in bulk. So the competition is there," Mr. Pinner said.

ADM intends to retain access to the ports for growers and retain access to the up-country silos, as well as maintain local management and a chief executive for GrainCorp, a condition likely to be demanded by the government, Mr. Pinner said.

-Write to Rob Taylor at [e-mail]

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