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The Deal: Australia Blocks ADM's GrainCorp Purchase

NEW YORK ( The Deal) -- The Australian government has blocked Archer Daniels Midland's (ADM - Get Report) A$3.4 billion ($3.2 billion) acquisition of GrainCorp, deciding that foreign ownership of the country's largest East Coast grain handler ran against the national interest.
 
Australian Treasurer Joe Hockey announced the decision on Friday, Nov. 29, ending Decatur, Ill.-based ADM's more than seven-month wait for an approval that appeared to be in the bag until snap elections in September led to a change of government.
 
"We are disappointed by this decision," Archer Daniels Midland 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."
 
Archer Daniels Midland has been left with no room to save the deal as the Treasury offered it no conditions or possible undertakings that would allow the takeover to progress.
 
Hockey's decision follows public in-fighting among Australia's recently installed coalition government over Archer Daniels Midland's offer. The government is led by the traditionally free-market Liberal party but has paired up with the Australian National Party, which draws its support from rural communities, where Archer Daniels Midland's acquisition was unpopular.
 
"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 said in a statement explaining his decision. "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 per cent foreign acquisition of this key Australian business."
 
Archer Daniels Midland had been pursuing GrainCorp since October 2012, and made a series of bids before striking an agreed offer of A$12.20 per share in April. The total A$3.4 billion offer valued GrainCorp's equity at A$2.7 billion and included debt of A$700 million. Archer Daniels Midland initially expected to complete the deal by August, but its plans were disrupted when the-then Labor Government, which supported the deal, ousted Prime Minister Julia Gillard, sparking elections that installed the Liberal-National coalition.
 
"Today was the first big test of Joe Hockey's economic credibility as Treasurer," Labor treasury spokesman Chris Bowen tweeted. "He failed it."
 
The decision to rule out Archer Daniels Midland on national interest grounds effectively precludes any other foreign bidders for GrainCorp. Australia's Competition & Consumer Commission cleared the offer in June, noting that it would have little effect on competition. At the time of Archer Daniels Midland's initial offer, analysts speculated that Bunge, Cargill or Louis Dreyfus Holding might also be tempted to bid.
 
"Today's events will have enduring implications that will be felt not only by our shareholders but by the entire industry," GrainCorp Chairman Don Taylor said in a statement. "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."
 
GrainCorp owns seven of the 10 grain port terminals on Australia's East Coast and handles about 85% of all grain exported from Australia's three largest grain producing states New South Wales, Queensland and Victoria. The sale of GrainCorp would have meant that substantially all of Australia's grain export infrastructure was under the control of three foreign owners -- ADM, Cargill and Switzerland-based Glencore Xstrata.
 
"I welcome the fact that Australia will continue to have a major locally-owned company dedicated to furthering the interests of the Australian industry," said Deputy Prime Minister and leader of the National Party Warren Truss.
 
Truss has led opposition to Archer Daniels Midland's acquisition and earlier this month claimed that the sale of GrainCorp would threaten Australia's position as an agricultural power.
 
Archer Daniels Midland, which owns 19.8% of GrainCorp, said it planned to work with the Australian company to maximize its investment. GrainCorp shares plunged Friday to as low as A$8.25, an almost two-year low, before recovering to close at A$8.72, down A$2.48, or 22% ,from their Thursday close.
 
Archer Daniels Midland shares closed Wednesday before Thanksgiving at $41.49.
 
GrainCorp took advice from Credit Suisse Group's Max Billingham and John O'Sullivan and Greenhill & Co. LLC's Simon Mordant and Roger Feletto. It tapped Gilbert & Tobin's John Williamson-Noble and David Clee for legal counsel.
 
A Barclays plc team including Dan Janes, Anthony Lazzoppina, Julian Babich and Oliver Johnson and Citigroup Inc. advised Archer Daniels. Corrs Chambers Westgarth's Braddon Jolley, Sandy Mak and Jeremy Horwood and Cravath, Swaine & Moore LLP's Richard Hall, Andrew R. Thompson, Stephen L. Gordon and Eric W. Hilfers provided legal counsel.

-- Written by Paul Whitfield

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