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S. Kidman & Co’s stalled deal: Where to from here?

Jon Condon, 19/11/2015

S. KIDMAN & Co’s board will seek clarification on issues raised in this morning’s Federal Government decision to reject the proposed sale of the major northern beef producer to Chinese interests, described as being “contrary to the national interest.”

In an interview with Beef Central soon after this morning’s announcement (see this morning’s earlier story) Kidman managing director Greg Campbell said the company’s board was now absorbing the implications of the announcement, and would explore what options it now had.

greg-campbell-kidman-close-up

Greg Campbell

“The first step will be to meet with representatives of the Commonwealth Government, who we hope will give us a little more insight into some of the sensitivities that have led to the decision – and whether there are possible options to overcome those,” he said.

One of the myriad issues that now comes into play is exactly how much importance the government has placed on the issue of national security concerns (given the location of one of Kidman’s properties adjacent to the Woomera Prohibited Area), versus the broader issue of allowing a parcel of land more than 1.3 percent of Australia’s land area to fall into foreign-owned hands. In its statement this morning, Treasurer Morrison simply describes national security concerns as ‘playing a role’ in the government’s decision to reject the sale, in being ‘contrary to the national interest.’

“At this stage, we only have available to us the Treasurer’s statement, as everybody else has,” Mr Campbell said.

He said at this point the company had no idea how heavily the decision was based on national security concerns.

“But you can read that that is a significant factor in the decision. Whether the military interests have been over-stated somewhat, is yet to be determined,”

Mr Campbell conceded that the National Party, and particularly agriculture minister Barnaby Joyce, had been vocal in their opposition to foreign investment more generally, and particularly by foreign state-owned enterprises.

“But none of Kidman’s short-listed bidders are state-owned enterprises, from any country,” he said.

“They are all independent businesses that have raised their finance in commercial terms – some are using the same banks, like Rabo, that any other Australian bidder would.”

Precedent in mining sector

Asked whether there was any course of appeal over the decision announced this morning, Mr Campbell said the company would take a lead from the ‘rather similar’ circumstances when AusMinerals was attempting to sell its mining assets to state-controlled China Minmetals in 2009.

AusMinerals had a portfolio of Australian and international mining assets, one of which was Prominent Hill, within the ‘Red Zone’ of the Woomera Rocket Range area. Ultimately that sale was blocked by Treasurer Wayne Swan at the time, but was later approved once Prominent Hill was ‘carved out’ of the AusMinerals portfolio.

Kidman’s Anna Creek Station, by comparison, is in the outer ‘green zone’ of Woomera, and the proposed buyer is not a government-owned entity.

Possible removal or sub-division of Anna Creek?

So is one solution to simply excise Anna Creek from the sale portfolio? That, in itself, would be on the assumption that the ‘national security concern’ is the fundamental reason for the Government’s sale rejection this morning.

“It could be a possible solution, however Anna Creek is a productive property and an important part of the flow of our northern cull cows, in particular, back to southern meatworks,” Mr Campbell said.

“Removing it from the sale process would have some considerable compromise to the integrated functionality of the business.”

Win an area of 24,000sq km, in addition to erasing the Woomera concerns, the exclusion of Anna Creek from the deal might also go some way towards dissipating any government concerns about the sheer extent of the land area involved in the deal. It amounts to close to one quarter of Kidman’s entire land asset area.

“The simple answer at this point is that we don’t know what the government is thinking,” Mr Campbell said. “Until we have some meetings, it’s impossible to determine the specifics in their points of concern, and what opportunities might be acceptable to overcome them.”

Sub-dividing Anna Creek so that the Woomera Rocket Range section could be excluded might be another option, he suggested. Restrictions on the type of activities that could occur there might also be an option.

“But it’s fair to say Kidman has operated Anna Creek in the Woomera ‘green zone’ for 50 years, and there has been no conflict with the various space and defence programs and running cattle.

“We knew that our prospective buyers had to make applications to the Department of Defence, and we detailed the type of activities that currently happen at Anna Creek in assistance with that.

“We knew it was always subject to review, and that the Department had the power of veto. But on balance, given the history of the arrangements there, and the very infrequent nature of any impost on our activities, we strongly felt it would pass through. It’s been a surprise that it has not.”

If the government’s underlying concerns are more around the size of the land area involved in the Kidman deal, discussions with the Commonwealth and the bidding consortium might drift into areas like joint venture ownership, where Chinese interests might own only a part of the business.

“If it goes down that path, discussions may focus on what level of Australian content they (current proposed buyers) might be able to encourage into their bid structures,” Mr Campbell said.

He confirmed that some of the initial bids received for Kidman did involve both Australian and foreign equity – either now, or later.

“Additionally, there were a range of downstream advances being explored, that may have to be brought into the picture sooner, rather than following-on later,” he said.

“There’s a lot of avenues yet to be explored, but the key at this point will be to get some guidance from the government on which of those might be more usefully pursued.”

“Again, somewhere between leaving the portfolio in its entirety, and breaking it up into its component parts, there must somewhere be an acceptable limit in the eyes of government,” Mr Campbell said.

But underlying any such moves was a need to recognise that the overall productivity of the business was enhanced by keeping the current structure in place.

So what does the latest development mean for the strategic position of other prospective Kidman bidders?

Mr Campbell told Beef Central that the domestic shortlisted parties in the bidding process had, “to every extent, fallen away on price, when compared with overseas bidders.”

“For them to now come back into play, either they would have to significantly raise their bid, or alternatively, Kidman shareholders would have to accept quite a discount on price, on what has currently been offered, which seems to be full market value for the business,” he said.

“And the full value of the business is determined by the integrated nature of the portfolio. Once that it modified, it starts impacting on the attractiveness, and the price of the business. Productivity in terms of kilograms of beef produced would decline, and so would profitability.”

Despite all what has happened this morning, Mr Campbell remains confident that a sale will be completed.

“Concessions of some sort will have to be made, clearly,” he said. “We’re hearing what the Treasurer is saying. Some concessions to the existing approach will need to happen, but exactly what they are we do not know at this stage,” he said.

“But we are hopeful that some reasonable combination will be acceptable. Without slamming the door shut on foreign investment in aggregated Australian agricultural operations, we need to find some solution.”

He said it was up to the government to provide answers to the question of whether this morning’s announcement sends a negative signal to potential foreign investors in agriculture, and beef specifically.

“But clearly, the serious interest in our business and the highest bids have come from offshore parties. As an industry, I don’t believe we ought to be discouraging that sort of interest.”

Asked whether he was surprised with this morning’s government decision, Mr Campbell said he would have given it “less chance of being rejected, than being approved.”

“I thought it was maybe a 30 percent chance of rejection, but more than that, I thought that would firstly involve a request for further clarity around certain aspects, before a rejection was made.”

 

NFF’s response to this morning’s Kidman announcement:

The National Farmers Federation has noted the Federal Government’s decision that the acquisition by foreign investors of S. Kidman and Co will not be given authorisation to proceed as currently proposed.

NFF CEO Simon Talbot said the peak farm body had been watching the sale closely, and would also be seeking clarity on how the ‘national interest’ test is applied, as well as further detail on Treasurer Scott Morrison’s decision.

“We respect the Federal Government and Foreign Investment Review Board’s right to make decisions concerning matters of national security,” Mr Talbot said.

“NFF is seeking further detail on the next possible steps with respect to this sale, and understand the Treasurer’s willingness to consider future proposals based on their merits.

Foreign investment in agriculture was always a sensitive matter, because of the need to balance the national interest against the need to attract new capital into the agricultural sector, he said.

“Agriculture is on the cusp of its boom cycle, but the need for capital investment is a significant roadblock to growth. To realise its potential, the sector needs $1.2 trillion over the next 40 years, sourced both domestically and from overseas.”

“Intense interest from around the globe in the Kidman properties underscores the massive potential of Australian agriculture – an industry positioned for strong and sustained growth over coming decades. The NFF looks forward to continuing to work with the Government on the issue, to ensure that the ultimate outcome is good for Australia and for its farmers,” Mr Talbot said.

 

 

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Comments

  1. alan mitchell., 20/11/2015

    I couldn’t agree more with reader John Gray. We are selling off our country willy nilly to overseas buyers with nary a thought to future generations or security of Australians. While it’s good to see that the Treasurer at this point has said “NO” I’d like to be sure and certain that he will stick to his guns. At the rate we are going we will no longer have access to our country with all food stuffs–and that includes cattle, having to be bought and brought in from overseas. I can feel empathy for the immediate family-they are entitled to earn a quid, but surely there are enough Australian owned (?) companies out there who could purchase the properties in various lots–banks insurance companies as at the end of the day, we–the Australian public are the ones who fund these institutions in the first place?. You only have to look at the debacle of the sale of Cubbie Station under the ‘watch’ of the then laughable treasurer to see how quickly our Agriculture is being wasted. If at the end of the day the federal government has to step in to buy the Kidman corporation then…so be it. Some of Australia’s top businesses must remain in Australian hands and the Kidman Group is one such business. It beggars belief that the Australian Government can fund Syrian refugees to the tune of 700 plus million dollars and yet it is not prepared to purchase a going concern which will benefit ALL Australians for centuries to come.

  2. John Gray, 19/11/2015

    Thank heavens, the federal government has got some common sense prevailing in blocking the sale of the most iconic pastoral setup in Australia. Let us hope that Scott Morrison sticks to his guns. Anyone in favour of this sale going ahead should be put up on treason charges and jailed. The shareholders of SK & Co should hang their heads in shame. Sir Sydney would be turning in his grave over all of this.
    Foreign ownership of our great nation is JUST NOT ON, foreign investment on the other hand – if they wish to bring their money over here – but limit it to no more than 40% in any single company or asset,
    Remember the words penned in the song sung by the Late Slim Dusty that went ” they couldn’t take us with bayonets & lead, so they’ve decided to buy us instead”
    I heard just the other day that near one quarter of the NT is now under foreign ownership, DOES’NT THAT SEND OF SOME SORT OF ALARM BELLS BOYS,

  3. Adrian Carroll, 19/11/2015

    Yet the Govt leases the Darwin port to the Chinese. Surely that’s a “risk” to ADF and the US military operations in the NT?

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