Treasurer Joe Hockey Blocks ADM Takeover Of GrainCorp

The Treasurer, Joe Hockey, has blocked the takeover of GrainCorp by the American company Archer Daniels Midland.

Hockey

Hockey used the power given to him alone as Treasurer to reject the foreign investment application. ADM was seeking to increase its current shareholding of 19.85% to 100%. Hockey said he would permit ADM to hold 24.9%.

Whilst many see the decision as unexpected, Hockey’s announcement heads off a political conflict with The Nationals in the coalition. In his announcement, Hockey said a “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.”

It seems clear that the government has avoided a clash with sections of its core supporters but the decision conflicts with Prime Minister Tony Abbott’s claim that “Australia is open for business”. Free marketeers and economic rationalists in the government will be alarmed at what the decision says about the future direction of the Abbott government.

GrainCorp was originally a NSW state government authority known as the Grain Elevators Board. It was privatised in 1992 and is Australia’s principal grain handling company. It operates an extensive network of rail-linked storage sites, export terminals and ports. Its website says: “GrainCorp Marketing buys and sells more than 4.5 million tonnes of wheat, barley, sorghum and canola per year, servicing both customers locally and internationally.”

  • Listen to Hockey’s press conference – transcript below (16m)

Media release from Treasurer Joe Hockey.

Foreign investment application: Archer Daniels Midland Company’s proposed acquisition of GrainCorp Limited

After long and careful deliberations, I have today made an order under the Foreign Acquisitions and Takeovers Act 1975 (the Act) prohibiting the proposed acquisition by Archer Daniels Midland Company (ADM) of 100 per cent of the shareholding in GrainCorp Limited (GrainCorp).

Since coming into Government, I have made decisions on a number of foreign investment proposals. Those decisions have facilitated a significant amount of new and welcome foreign investment in Australia.

In fact, of the 131 significant foreign investment applications we have dealt with, this is the only application we have prohibited.

ADM’s proposal was first lodged with the Foreign Investment Review Board (FIRB) in May 2013. ADM has withdrawn and re-submitted its application a number of times. The matter was not resolved by the former government before entering into the caretaker period for the 2013 Federal Election.

Given the contentious nature of this application, I have been conscious of addressing the uncertainty surrounding the timing of a decision. Upon assuming this ministry, I reviewed all the available information relating to the application from ADM and formed the view that information on a wider range of issues was required. This included that the FIRB, when considering the national interest, specifically have regard to the impact the decision on this proposal would have on broader Australian support for foreign investment and the foreign investment regime into the future.

Because of these considerations, additional time was required to assess the application. Accordingly, on 4 October 2013, I signed an interim order under the Act to extend the statutory time period for a decision and undertook to make a decision by 17 December 2013.

There is no doubt that foreign investment has underpinned the development of our nation since European settlement. Equally, there is no doubt that we must continue to attract the strong inflows of foreign investment that the economy requires. Without it, Australia’s output, employment and standard of living would all be lower.

The proposed acquisition of GrainCorp by ADM has been one of the most complex cases to come before the FIRB and it is one of the most significant proposed acquisitions of an agricultural business in Australia’s history.

In their response to my 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.

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.

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. 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 New South Wales, 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 publically 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 19.85 per cent 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 24.9 per cent. This would also provide a platform for ADM to build stakeholder support for potentially greater participation in the Australian industry as it develops.

The Australian Government recognises that our nation needs foreign investment so that we continue to grow and prosper.

We will continue to welcome and support foreign investment that is not contrary to our national interest.

Transcript of Treasurer Joe Hockey’s press conference on the GrainCorp decision.

HOCKEY: Thanks for coming so early. I’m here to make an announcement about the proposed application by Archer Daniels Midland to buy 100% of GrainCorp. We have such an early press conference because at this point the markets are closed in both the United States and in Australia. After long and careful deliberations, I have today made an order under the Foreign Acquisitions and Takeovers Act prohibiting the proposed acquisition by ADM of 100% of GrainCorp. Since coming into Government, I have made decisions on a number of foreign investment proposals and those decisions have facilitated a significant amount of new and welcome foreign investment in Australia. In fact, of the more than 131 significant foreign investment applications we have dealt with, this is the only application that we have prohibited.

ADM’s proposal was first lodged with the Foreign Investment Review Board in May 2013. ADM has withdrawn and resubmitted its application a number of times. The matter was not resolved by the former Government before entering into the caretaker period for the 2013 Federal Election. Given the contentious nature of this application, I have been conscious of addressing the uncertainties surrounding the timing of the decision.

Upon assuming this Ministry I reviewed all the available information relating to the application from ADM and formed the view that information on a wider range of issues was required. This included that the FIRB, when considering the national interest, specifically have regard to the impact of the decision of this proposal and the impact it would have on the broader Australian community and its support for foreign investment and the foreign investment regime into the future.

Because of these considerations, additional time was required to assess the application and, accordingly, on 4 October, I signed an interim order under the Act to extend the statutory time period for a decision and I undertook to make a decision by 17 December.

There is no doubt that foreign investment has underpinned the development of our nation since European settlement. Equally, there is no doubt that we must continue to attract strong inflows of foreign investment that the economy requires. Without it, Australia’s output, employment and standard of living would all be lower. The proposed acquisition of GrainCorp by ADM has been one of the most complex cases to come before FIRB and it is one of the most significant proposed acquisitions of an agricultural business in Australia’s history. In their response to my 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. They were split. For me to reject this proposal, I had to determine that the acquisition of GrainCorp by ADM is contrary to the national interest and, based on all the information available, I have now made that decision.

The Australian grains industry is an important export industry that has been transitioning through a significant deregulation process since the abolition of the single desk for wheat exports back in 2008. 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 10 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% 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% 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 judge 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 for me to impose conditions when making foreign investment decisions. I have 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, one company in a changing industry, would limit the capacity of that company to respond to the changing environment. ADM has advised me that it wishes to be involved in the Australian marketplace for the long-term.

ADM currently owns 19.85% of GrainCorp. It was open to me under the Act to continue to cap its 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’m inclined, based on current circumstances, to approve any proposals from ADM to increase its shareholding in GrainCorp up to an interest of 24.9%. This would also provide a platform for ADM to build stakeholder support for potentially greater participation in the Australian industry as it develops.

The Australian Government recognises that our nation needs foreign investment so that we can continue to grow and prosper. We will continue to welcome and support foreign investment that is not contrary to our national interest. Questions?

JOURNALIST: As you say ADM sweetened its offer on Wednesday, pledging that $200 million. That is a hard number to come by. Is the Government now going to give that to GrainCorp?

HOCKEY: No.

JOURNALIST: Any support of any sort?

HOCKEY: No. This is purely about a foreign investment application and the extra offer from ADM to GrainCorp, we were made aware of it some time ago.

JOURNALIST: The ACCC said they had no problems with the acquisition. Is this vote of no confidence in the ACCC?

HOCKEY: No, it’s not. All the issues I took into account were much broader than the issues dealt with by the ACCC.

JOURNALIST: You indicated there was no consensus of the Foreign Investment Review Board. Does that imply some members of the Foreign Investment Review Board were, in fact, in favour of this takeover being allowed?

HOCKEY: It was split. The Foreign Investment Review Board was split. When I asked them to consider a whole range of additional issues, particularly relating to the national interest, they were split and I made the call. I have made a call in the national interest.

JOURNALIST: What does this say about Tony Abbott’s election night pledge that Australia’s open for business, if we are rejecting this sort of offer?

HOCKEY: We are open for business. Of the more than 130 applications that have come to my desk since the election, only one has been declined and this is it. I have acted in the national interest. The fact is the industry is going through transition and now is not the right time to have all the major players foreign owned during the course of that transition.

JOURNALIST: Senator Heffernan said their corporate history is a big problem to him. Was that at all a factor in your decision today?

HOCKEY: I took into account a large range of issues and, as I said in my statement, I have given you the main issues for my decision.

JOURNALIST: It was clearly a difficult decision to make?

HOCKEY: It was a very complicated transaction, extremely complicated. It has involved consultations with parties. I do want to thank ADM for being prepared to consult with me on a very honest basis and it did involve consultations under the Free Trade Agreement with the United States Government. I have had to go through quite the process but it has been a very thorough process and it is the right decision.

JOURNALIST: Have you been in contact with them this morning?

HOCKEY: Everyone has been properly informed.

JOURNALIST: You said that you wouldn’t be bullied about this decision. Can you clarify now who you were suggesting was bullying?

HOCKEY: It was not particularly directed at parliamentary colleagues. Let me say that.

JOURNALIST: In regards to future decisions you might make. This is very early in your term, many might suggest there will be other foreign takeovers that could come up during your term. Given the fact there’s only been three significant takeovers knocked back by any Governments over the past 15 years or so, does that imply there may be others you might have to knock back during the next three years or so?

HOCKEY: I will act in the national interest. That is what I was elected and then appointed to do, to protect the national interest, and that is what I have done.

JOURNALIST: You wouldn’t want to be seen as a protectionist?

HOCKEY: With a score card of 130 to 1, it could hardly be suggested that we are closed for business. That is of the significant applications that have come before us. The fact of the matter is we need foreign investment, we welcome foreign investment, but it has got to be investment that is not contrary to the national interest and in this case, I have determined that the proposal is contrary to the national interest.

JOURNALIST: It sounds like you are leaving the door open for them to at some stage to reapply?

HOCKEY: As I said, the industry is going through a transition. That will be a difficult transition. I would not want foreign investment to be the lightning rod for blame associated with that transition, nor would I want to impede the transition or impede competition. Of course, ADM has massive scale compared to GrainCorp and it has a range of options open to it. I want to emphasise that I was not inclined to impose conditions on an individual company – and this is very important, particularly in the context of what we are seeing with Qantas at the moment. When Governments impose conditions on individual companies, it inhibits the ability of that company to be able to respond to movements in the market place. I certainly was not going to be in a situation where I was expressing concern about regulatory restrictions on Qantas yesterday and then impose regulatory restrictions on GrainCorp today.

JOURNALIST: What about Archer Daniels Midland, what sort of response did they give to you? Did they give you any indication as to whether they will take the stake of 25% or depart Australia altogether?

HOCKEY: That is a matter for them.

JOURNALIST: What about their response to it? Were they disappointed?

HOCKEY: I will not be a commentator on this. I have had to be a decision maker and that is the way it should be.

JOURNALIST: You’ve ruled it out for now but not ruled it out forever?

HOCKEY: I deal with applications as they come before me.

JOURNALIST: On that Qantas issue, are you prepared to consider giving a guarantee to Qantas similar to the one that was provided to the banks during the GFC?

HOCKEY: The first question is – do Australians want to retain a national carrier and do they want to retain shareholding restrictions on our national carrier? If the answer to both those questions is yes, as I said yesterday, there is a price that needs to be paid. We will carefully consider all the options but the fact of the matter is these issues need to be dealt with. I am not someone that is prepared to kick the can down the road on issues. If decisions need to be made, they will be made.

JOURNALIST: You’re not seriously considering putting taxpayer’s money into Qantas?

HOCKEY: I’m not going to speculate on speculation in the papers. Thank you very much.

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