DESPITE a package of investments and commitments designed to sweeten the taste of Archer Daniels Midland Co.'s (ADM) $3.4 billion (Australian) purchase of GrainCorp, Australia's Federal Treasurer ruled Nov. 28 that the two companies could not consummate the proposed acquisition.
Ruling that the deal was "not in Australia's national interest," treasurer Joe Hockey said ADM's proposed acquisition of GrainCorp was one of the most complex cases to come before the Foreign Investment Review Board (FIRB) and was one of the most significant proposed acquisitions of an agribusiness in Australia's history.
"Given the contentious nature of this application, I have been conscious of addressing the uncertainty surrounding the timing of a decision," Hockey said in a statement. "In their response to my request for advice on the wider ramifications of this case, the members of FIRB could not agree on a consensus recommendation in relation to the proposal."
According to Hockey, GrainCorp owns more than 280 up-country storage sites and seven of the 10 grain port terminals in New South Wales, Queensland and Victoria, accounting for a significant share of eastern Australia's grain storage, distribution and marketing. Approximately 85% of eastern Australia's bulk grain exports are handled through GrainCorp's ports network.
That concentration of assets, coupled with "a high level of concern from stakeholders and the broader community," led Hockey to determine that the acquisition was contrary to Australia's national interests.
The two companies announced a package of investments and commitments earlier in the week that was designed to make the acquisition more palatable for those stakeholders concerned that the deal would hinder competition in the country.
ADM currently owns 19.85% of GrainCorp; it acquired a significant investment in the company as the opening salvo in its acquisition bid. Under Australian law, Hockey said he was authorized to cap ADM's shareholding in GrainCorp at its current level but opted 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%," he said. "This would also provide a platform for ADM to build stakeholder support for potentially greater participation in the Australian industry as it develops."
Failing to finalize the GrainCorp acquisition, a deal ADM has been working on for more than a year, leaves the Illinois-based heavyweight with little more to show for its efforts than a sizable ownership interest in its intended target.
"We are disappointed by this decision. 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 chair and chief executive officer 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," she said.
Woertz confirmed that Hockey requested no conditions or undertakings of ADM.
Concerning ADM's plans for its current investment in GrainCorp, Woertz said, "As owner of 19.85% of GrainCorp, we will look to work with them to maximize returns on our investment and create value for both companies."
Shares of both companies took a hit following Hockey's announcement, although the Australian firm bore the brunt of investor sentiment, with its stock falling 22% in the first day's trading. The stock has now dropped more than 27%, and GrainCorp chair Don Taylor underscored the severe repercussions of Hockey's decision.
"Today's events will have enduring implications that will be felt not only by our shareholders but by the entire industry," Taylor said. "Australian agriculture has been prevented from realizing the potential benefits from the significant capital ADM would have invested in the long-term future of this industry."
As if a failed merger weren't enough bad news for the company, GrainCorp CEO Alison Watkins announced Dec. 2 that she will leave the company in mid-January to take the rudder at Coca-Cola Amatil, one of the five largest Coca-Cola bottlers on the planet.
"I have carefully weighed my options over the past few days," Watkins said. "Given last week's unexpected developments, I feel it is in the best interests of GrainCorp, our people and customers that I move on now and allow the board to find new leadership to take the business forward into its new phase."
Taylor will manage the firm as acting CEO and executive chairman until a new CEO can be appointed. While the company enjoyed strong performance throughout 2013, it appears adrift in the short run, with its intended suitor and top executive both snatched away at the 11th hour. In total, Hockey's decision has sapped roughly $1 billion from the company's shareholders and Australian agriculture.
Although ADM's share price dipped 3% in the wake of the aborted acquisition, it has since rebounded and is up nearly 53% year to date. The company has not tipped its hand as to specific future plans for GrainCorp. The company also holds a 16% stake in Singapore-based agribusiness giant Wilmar International and may consider other international gambits to further ADM's end goal of holding a competitive edge in the global food and commodity marketplace.