Australia Government Still Considering ADM's Graincorp Deal

   By Rob Taylor 
 

CANBERRA, Australia--The government has yet to decide whether to block or restrict a 3.0 billion Australian dollar (US$2.9 billion) bid by U.S. agribusiness giant Archer Daniels Midland Co. (ADM) to buy local grain handler GrainCorp Ltd. (GNC.AU), senior ruling conservative sources said, following reports Prime Minister Tony Abbott was set to veto the deal.

ADM's offer is a litmus test for the new conservative government's commitment to attract more foreign investment and reinvigorate the country's $1.5 trillion economy as a decadelong resources boom ends. However, the deal has stirred concern among some politicians and growers.

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.

"It's not [the prime minister's] decision, but in any case he has not gone down any path yet," a senior government lawmaker close to Mr. Abbott said Friday.

The West Australian newspaper earlier Friday reported that Mr. Abbott was poised to reject the multi-billion takeover of Australia's biggest agribusiness, bowing to political and grower opposition to the deal. Mr. Abbott was inclined to block the purchase or impose such onerous conditions on the deal that it wouldn't be viable, the paper said, citing unnamed senior members of Mr. Abbott's ruling Liberal-National coalition.

Mr. Abbott's conservative government was elected in September vowing to ensure Australia was "open for business". Most foreign investment deals are approved by Australian authorities, especially those involving companies based in the U.S., a longtime ally of the country. Still, some recent acquisitions have drawn extra scrutiny from regulators or sparked opposition from politicians.

Deputy Prime Minister Warren Truss, who leads junior coalition partner the rural-based 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".

But other senior conservatives spoken to by the Wall Street Journal Friday rejected reports Mr. Abbott would intervene or veto the deal.

"The process is for the Foreign Investment Review Board and the Treasurer. There is no veto," said one who asked not to be named given the political sensitivities around the deal.

While there had been furious lobbying by both supporters and opponents of the deal as Parliament resumed this week for the first time since the election, senior lawmakers said the prime minister had given scant hint of his views on the takeover, which some east coast grain growers argue will surrender control of Australia's food security into foreign hands.

GrainCorp shares suffered their biggest fall in months in Sydney trading Friday, falling as much as 6.4% to a seven-month low of A$11.41. Offshore hedge funds have been betting on a successful bid. GrainCorp shares, which struck a record high of A$12.82 in April, were last down 4.0% at A$11.70.

Mr. Abbott earlier this week sketched out his broad thinking on future foreign investment deals, saying in an interview with local radio that he was more favorable to acquisitions that offered to "build the farm", rather than simply selling an existing business offshore. While he doesn't have direct power over individual foreign investment decisions, his views likely go some way toward influencing Treasurer Joe Hockey's decision.

"Our agricultural industry wouldn't be as strong as they are without foreign investment. But it does have to be the right investment, not the wrong investment," Mr. Abbott said at the time.

ADM executives have promised to invest in infrastructure and retain local management of GrainCorp, which critics say already has a near monopoly on Australia's east coast. ADM said GrainCorp controls only seven of 11 bulk terminals on the east coast. It intends to retain access to the ports for growers and retain access to the up-country silos.

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. Australia's previous Labor government had ambitions to make the country a food bowl for the region.

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 if the ADM purchase gets the green light.

"I think it's in the national interest to know the detail, to know the funding arrangements," influential upper house Liberal Senator Bill Heffernan, a trenchant critic of the deal, said Friday. Mr. Heffernan said there were serious questions about how ADM would handle business and tax affairs in Australia as well as how it would use its power in the market.

Unveiling a 15 percent fall in net profit to A$175 million on Thursday, GrainCorp Chief Executive Alison Watkins defended the deal, adding that "Australia of any country in the world has the least to be concerned about when it comes to food security".

-Write to Rob Taylor at [e-mail]

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