UPDATE 2-Australia surprises with rejection of $2.55 bln GrainCorp takeover by ADM

Thu Nov 28, 2013 5:50pm EST

* Treasurer Hockey rejects offer on national interest grounds

* Grain growers worried about foreign ownership of key east coast handler

* GrainCorp shares set to fall

By Lincoln Feast and Colin Packham

SYDNEY, Nov 29 (Reuters) - Australia rejected the A$2.8 billion ($2.55 billion) takeover of GrainCorp by U.S. agribusiness giant Archer Daniels Midland (ADM) on Friday, bowing to pressure from grain growers in a rare and surprising decision.

The deal had been seen as the first test of the conservative government's vow that Australia was "open for business" after the victory of Tony Abbott's Liberal Party in elections in September.

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

"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," Hockey told reporters in Sydney.

"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 percent foreign acquisition of this key Australian business."

Hockey said he was open to ADM increasing its near 20 percent stake in GrainCorp to almost 25 percent, but his ruling effectively ring-fences GrainCorp from any takeover.

Shares in GrainCorp closed on Thursday at A$11.20, compared to ADM's A$12.20 per share bid, or A$13.20 per share including dividends payable by GrainCorp.

Analysts said GrainCorp shares were set to tumble once the market opened on Friday given they had traded around A$8.70 per share before ADM's initial approach and profits are coming off record highs of a year or two ago.

"The problem now of course is the recent numbers from GrainCorp look pretty scary, so my feeling is a downside on GrainCorp is a lot lower than what it was trading at before this was announced, so really bad news for shareholders," said Shannon Rivkin, a director at Rivkin Securities.

ATTRACTIVE ASSETS

Australia is the world's second largest wheat exporter and GrainCorp is the largest listed grains company, handling approximately one-third of the country's wheat production.

It dominates the country's east coast storage, distribution and marketing of grains, owning seven of the 10 grain port terminals and handling 85 percent of eastern Australia's exports.

"We are disappointed by this decision," ADM Chairman and CEO Patricia Woertz said in a statement. "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 - one of the four "ABCD" firms that have dominated the global agricultural business for decades - is more U.S.-focused than rivals Cargill, Bunge and Louis Dreyfus and had wanted GrainCorp to improve its access to fast-growing Asian markets.

The deal had previously been approved by Australia's competition regulator and analysts had widely expected it to proceed.

But it had stoked divisions between the Liberal Party, which is seen as pro-investment, and its junior partner, the rural-based National Party, which opposed the deal.

National Party leader Warren Truss, who is also deputy prime minister, was one of the most prominent figures to call on Hockey to reject the deal, citing concerns over selling national assets to foreign companies and decreased competition.

Only a handful of foreign investment deals are rejected by Australian authorities each year and ADM's tilt at GrainCorp is far from the first foreign deal in the agriculture sector.

Hockey said the deal was the only one of 131 significant foreign investment applications that had been rejected since he came to office.

ADM's interest in GrainCorp was part of a wave of international interest in Australia's agricultural industry, most recently in the dairy industry where Australia's Warrnambool Cheese and Butter Factory Company Holdings Ltd has sparked a bidding war.

ADM was advised by Citi and Barclays, while Credit Suisse and Greenhill advised GrainCorp

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