Australia rejects GrainCorp-Archer Daniels Midland's $3.1 bn merger

The Australian government has rejected the $3.1 billion proposed acquisition of Australian grain handler GrainCorp Ltd by US-based Archer Daniels Midland Co (ADM).

Bowing to pressure from grain growers, the newly elected conservative government headed by Prime Minister Tony Abbott, has clearly indicated that the country's last major independent grains handler would not be a takeover target in the future by an overseas company.

Although the new conservative government, which took office in September, had earlier said that it is open to foreign investment in the country, but its coalition partner, the National Party has opposed the ADM-GrainCorp merger.

Treasurer Joe Hockey said that the deal was rejecting on national interest grounds after the Australia's Foreign Investment Review Board (FIRB) failed to reach a consensus.

"Grain growers in eastern Australia have expressed concern that the proposed acquisition could reduce competition and hinder their ability to access the grain storage, logistics and distribution network," Hockey told reporters in Sydney.

GrainCorp's chairman Don Taylor said it was extremely disappointing that the transaction would not be proceeding as planned.

''Today's events will have enduring implications that will be felt not only by our shareholders but by the entire industry. Australian agriculture has been prevented from realising the potential benefits from the significant capital ADM would have invested in the long term future of the industry.''

In April, GrainCorp, Australia's largest independent grain handler, finally agreed to be acquired by ADM, after the Illinois-based agriculture giant sweetened its offer to $3.1 billion plus dividend from its earlier $2.9 billion offer. (See: GrainCorp finally submits to ADM's $3.1-bn bid)

ADM, which had built up a 19.8-per cent stake in GrainCorp, has been pursuing the Sydney-based company since October 2012, as part of its plan to expand outside the US.

Buying GrainCorp would be ADM's biggest deal after it acquired WR Grace & Co's cocoa business in 1996 for $470 million.

Founded in 1916, Graincorp, originally called Government Grain Elevator, was part of the New South Wales government's department of agriculture to transport grain from the grain-producing regions by rail.

GrainCorp, which has grown through strategic acquisitions after being privatised in 1992, has over 280 country elevators, grain storage capacity of up to 20 million tonnes spread across more than 2,700km from Queensland to Victoria, and seven bulk grain export elevators, serviced by 20 contracted trains with the capability of hauling up to 4 million tonnes of grain annually.

It handles as much as 60 per cent of Eastern Australia's wheat, barley, canola, chickpea and sorghum crops.

GrainCorp Marketing buys and sells more than 4.5 million tonnes of wheat, barley, sorghum and canola per year, while GrainCorp Malt is one of the world's largest commercial malt producers, producing over 1 million tonnes of specialty malts annually for the world's leading brewers and distillers.

Founded in 1902 by George Archer and John Daniels, ADM is one of the world's largest agricultural processors with more than 270 processing plants, 420 crop procurement facilities and a large crop transportation network.

It main competitors are Cargill, Bunge and Louis Dreyfus.

With annual sales of $90.6 billion and market capitalisation of $24.2 billion, ADM is 10 times the size of GrainCorp by value.