Analysis: GrainCorp takeover
All deals destined to go ahead as Australia surveys new Asian age
Moreover, ADM will have a dominant presence throughout the country once the last remaining publicly traded grain merchant in Australia once the American harvest major assimilates the nation into the 140-plus countries in which it has significant control.
There has been very little defence of GrainCorp on the home front. With a sweetened offer amounting to A$3.4bn – A$12.20 per share in cash and a one-time A$1 per share special dividend – the shareholders are never likely to hold out in spite of them rebuffing ADM twice in the past.
The ACCC also gave its swift blessing to the deal, in spite of subdued opposition by lawmakers – the Nationals appear to be the only real opponents of the move as they look to petition federal treasurer Wayne Swan to reject the takeover and keep the successful grain company home grown.
Indeed, the ACCC only seemed to have blue-sky thoughts about issuing the green light.
“The ACCC concluded that the proposed acquisition would be unlikely to substantially lessen competition as the merged entity would continue to face competition from a number of sources,” ACCC Chairman Rod Sims said.
In forming its view, the ACCC claimed to have conducted an extensive public review process that involved consultation with grain growers, industry bodies and competitors about the likely effect of the proposed transaction on competition.
Current competition between GrainCorp and ADM is focused mainly on grain trading and marketing in Victoria, New South Wales and Queensland, where GrainCorp competes with Toepfer – itself 80% owned by ADM – and a number of large market participants.
However, it found that competitors of the merged firm collectively account for the majority of grain traded on the east coast “and the ACCC considers that they will continue to constrain ADM”.
The deal must now be approved by shareholders, the Chinese Ministry of Commerce and the Foreign Investment Review Board – a body that has never before rejected an agribusiness application. Indeed, the FIRB even rubber-stamped foreign ownership and control of SunRice in spite of dissent by shareholders and an eventual rejection of Ebro’s offer a year ago.
'Bunch of shonks'
Last week ADM’s bid encountered intense questioning from a Senate committee amid concerns the takeover would put a foreign stranglehold on grain storage and infrastructure.
Veteran Liberal senator Bill Heffernan told the committee hearings that Australian grain growers would not tolerate "a bunch of shonks" taking over GrainCorp, in reference to ADM's history of alleged price-fixing and market-rigging. Heffernan also expressed doubts that the company understood the concerns of farmers likely to be affected by the deal.
Rural organisations including NSW Farmers have voiced deep objections over the takeover, citing concerns over existing arrangements and lowered payments to finance the deal.
NSW Farmers warned that the break-up of GrainCorp’s natural monopoly by divesting some of its port assets should be a condition of the sale, otherwise local grain traders would likely lose the export access they needed to compete.
Turkeys may not vote for Christmas but the GrainCorp board has already recommended its own demise. Its recommendation to shareholders to allow the outcome came in the face of ADM announcing that it would replace the entire GrainCorp board of directors with its own choices.
But Sims said the ACCC was confident that a new board wouldn’t affect the company’s behaviour in the long-run.
"We're not relying on [ADM] good graces," he countered in an ABC broadcast.
"We have an effective access arrangement in place for GrainCorp that constrains any inappropriate behaviour by them, and likewise we should have an effective access arrangement in place to constrain any inappropriate behaviour by ADM.
"So we were never relying on the board members of ADM in the first place."
But, according to Nationals Senator Fiona Nash, Sims is being disingenuous: GrainCorp’s longstanding directors have built a deep understanding of the local business and relationships with producers over years, and this stands to crumble in a flash.
“What ADM aren't taking into account is the relationship between the directors of the board and senior management," she said.
"And the relationships between those people and the broader workings of GrainCorp. There is certainly a degree of unease about replacing the board and how that would effect those relationships."
There are, of course, benefits to the takeover, most notably Australia’s quest to supply more produce to the emerging markets across the Asia-Pacific region. After all, the country’s minister for trade and competitiveness also shares responsibility for assisting the prime minister on “Asian Century” policy.
Research last year by ANZ and consultancy firm Port Jackson Partners said the country could capture up to $1.7tn in additional revenues from agriculture exports between now and 2050, as long as it seized the opportunity of the Asia food boom.
This is in line with ADM’s ambitions – after all, it would be the beneficiary of increased overseas grain trade.
“Should the offer proceed, the addition of GrainCorp to our global network would fit our strategy and help to further connect Australia’s growers with growing global demand for crops and food, particularly in Asia and the Middle East,” said Patricia Woertz, ADM’s chief executive.
“ADM and GrainCorp have complementary geographies with little overlap and highly compatible cultures.”
But regardless of the rhetoric, the Australian government will ensure the deal goes ahead this time as Australia seeks to get an upper hand – with much overseas assistance – in this bright new Asian century.
Have your say: Do you see ADM's proposed takeover as a stepping stone for increased Australian exports, or is it another sad example of the country losing its homegrown businesses? Let us know in the comments below.