There has been much media comment on the Treasurer's rejection of the Archer Daniels Midland (ADM) takeover proposal for GrainCorp and the surrounding political and foreign relations dynamics. What can tend to be lost in the noise of generally self-serving public statements and responses to what is a superficially extraordinary decision is an appreciation of the ordinary Foreign Investment Review Board processes and the attendant legal considerations. With a keen desire to avoid the politics of the decision, here are some fact-based observations on the ADM takeover proposal and its rejection on national interest grounds by the Australian Treasurer.
A drawn-out takeover bid process
After a FIRB-sanctioned 19.9% stake building exercise and two spurned approaches (the first of which became public on 22 October 2012), on 26 April 2013 ADM finally entered into a conditional agreement to proceed with a takeover bid for GrainCorp with a cash value of $13.20. The transaction effectively ended on 29 November 2013 when the Treasurer announced his decision.
Fact: Not that this was a consequence of the foreign investment approval process (either at all or predominantly), but this was an extraordinarily drawn-out takeover process, by historical standards.
The deadline for the Treasurer's decision
ADM lodged its FIRB application in connection with the takeover of GrainCorp in May 2013, following which it was withdrawn and re-submitted several times. In October 2013, the Treasurer executed an interim order which had the effect of extending the statutory deadline (usually 30 days) for the Treasurer's decision to 90 days.
Fact: While 90 day interim orders are not usual, the process of withdrawal and re-submission is becoming commonplace (even on transactions of relatively less significance), allowing the FIRB to manage workloads and the processing of applications pragmatically within the strict statutory timeline.
Intervention is not unheard of
The Treasurer stated that, with the ADM / GrainCorp decision, he had only prohibited one transaction out of 131 in the short time that his government had been in power. Over the history of the Foreign Acquisitions and Takeovers Act 1975 (Cth), only a handful of transactions (Royal Dutch Shell / Woodside Petroleum, Singapore Stock Exchange / ASX, and now ADM / GrainCorp being the significant transactions usually cited) have been blocked outright.
Fact: While only a handful out of tens of thousands of transactions have been blocked on "national interest" grounds, this is not necessarily representative of the Treasurer of the day's history of intervention. It may be unusual for transactions to be blocked outright, but it is not uncommon for conditions or undertakings to be applied to FIRB approvals or for proposals to be re-negotiated to accommodate FIRB concerns (eg. MMG / OZ Minerals, Sinosteel / Murchison Metals, Shandong RuYi / Cubbie, SABMiller / Fosters, Wilmar / Sucrogen, Yancoal / Felix Resources to name but a few of the better known ones).
"Contrary to the national interest"
The Treasurer's being satisfied that a transaction is "contrary to the national interest" is a pre-requisite to the exercise of powers to prohibit a transaction or make an order unwinding a transaction, and the "national interest" concept is peppered throughout the Act. However, it is not a defined term. Some guidance in respect of the national interest concept is provided in the FIRB's over-arching policy document "Australia's Foreign Investment Policy", first released in June 2010 (the first time that the Federal Government offered the public an insight into the types of considerations that go towards national interest considerations). In 2012, the Government provided additional colour on the application of the national interest test to agricultural industries.
Fact 1: The FIRB's policy document is not exhaustive of all matters that are taken into account in the application of the "national interest" test. This is clear on the face of the document, and is also apparent from the Treasurer's statement in respect of ADM / GrainCorp which said "the FIRB, when considering the national interest, specifically have regard to the impact … on broader Australian support for foreign investment and the foreign investment regime into the future". In a similar vein, the Treasurer went on to say "allowing [the proposal] to proceed could risk undermining public support for the foreign investment regime and ongoing foreign investment more generally".
Fact 2: Notwithstanding calls for a more detailed or transparent test (eg. the Senate Rural and Regional Affairs and Transport References Committee in its June 2013 report on Foreign Investment and the National Interest), don't expect greater certainty to be provided by Treasury or the FIRB any time soon in connection with the "national interest" concept. The flexibility and discretion afforded by the nebulous nature of the concept is useful and valuable to the Federal Government.
Fact 3: Following the Treasurer's mention of the potential for a public backlash against foreign investment being part of the national interest consideration, proponents of transactions with significant implications for a section of the Australian community (on this occasion, grain growers) will need to be more prepared than ever before to respond to public and political campaigns.
Competition law issues
In his decision, the Treasurer noted the extent of GrainCorp's East Coast grain storage, distribution and marketing interests and the potential for a reduction in competition and potential adverse impacts on grain growers' access to storage, logistics and distribution networks.
Fact: Approval from the Australian Competition and Consumer Commission (ACCC) does not prevent the FIRB and the Treasurer taking into account competition issues as part of the national interest test. (And vice versa – FIRB approval does not guarantee the approval of the ACCC.)
The application of conditions to an approval (as contemplated by section 25(1A) of the Act) is sometimes a viable approach for proponents (or indeed the Treasurer) when a specific national interest concern with a proposal has been identified. As noted above, conditions have been applied on many occasions. ADM offered investment (A$200m of capital expenditure) and regulatory (three years of price caps on storage and handling charges) commitments in connection with the GrainCorp transaction that could readily have been parlayed into FIRB conditions. It was also reported that consideration was given to divestment conditions as a means of dealing with the concerns of the Treasurer and the FIRB.
Fact: Some proposals create national interest concerns that are incapable of being overcome by the imposition of conditions. As the Treasurer said of ADM / GrainCorp, "there are no appropriate conditions that would mitigate the national interest concerns associated with the proposed acquisition".
In the week leading up to the Treasurer's decision, media reporting began suggesting that a side letter commitment between Australia and the United States struck at the time of the entry into the Australia / US Free Trade Agreement required the Australian Government to involve its US counterpart in negotiations over the potential blocking of the ADM proposal. According to media reports, the existence of the side arrangement was not known to the parties until very late in proceedings when an inter-governmental dialogue reportedly commenced.
Fact: A better system for recording the existence of inter-governmental arrangements (be they connected with free trade agreements or otherwise) which have the ability to influence the outcome of the FIRB and national interest debate and process would be useful. This is likely to become even more important as the Australian government strives to enter into free trade agreements, most notably the Trans-Pacific Partnership and the proposed FTA with China.
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