When he rejected the bid by Chinese company, Dakang for an 80% share of S Kidman and Co, Australian Treasurer Scott Morrison offered three reasons why it wasn’t in the national interest.
Each of these three sits uncomfortably with previous deals that have cleared the approvals process.
This makes the Treasurer vulnerable to criticism that it is not threats to the national interest he is responding to but, rather, populist pressures around investment from China.
The Treasurer's first objection is that Kidman’s portfolio is big. Even with the property at Anna Creek carved out, there are still 11 cattle stations up for sale that cover 77,000 square kilometres.
Yet in 2009 London-based private equity group, Terra Firma had no trouble taking a 90% stake in Consolidated Pastoral Company (CPC), another Australian business with sprawling cattle station holdings. CPC’s portfolio includes 20 properties, covers 57,000 square kilometres and has more than double the herd carrying capacity of Kidman. And several decades ago, UK company, Vesteys held cattle stations covering an area of Australia more than twice that now for sale by Kidman.
The second reason the Treasurer gave for rejecting the proposed acquisition is that the 11 properties were being offered as a single aggregated asset and this made it difficult for an Australian investor to make a competitive bid.
To be sure, Dakang’s $371 million offer is a big wad of cash. But it is less than the $425 million that Terra Firm paid when it received regulatory approval to acquire CPC’s portfolio. And just two weeks ago The Australian Financial Review reported that Queensland Investment Corporation (QIC) was in due diligence on a likely $400 million dollar deal for the North Australian Pastoral Company, which has cattle stations spread across Queensland and the Northern Territory.
With local billionaires such as Gina Rinehart and Twiggy Forrest also getting into the cattle game, it seems awkward to suggest that Australian suitors lack the funds to compete.
Indeed, Treasurer Morrison conceded an independent review of the Kidman bid process led by Professor Graeme Samuel had confirmed local bidders had been given an opportunity to make an offer. He added that the review found there 'remains significant domestic interest in Kidman'. No doubt there is. But unlike QIC and the North Australian Pastoral Company, local investors didn’t show the same level of interest in Kidman that Dakang did.
The final reason given for not allowing the deal to go ahead was that it could undermine public support for foreign investment in Australian agriculture more generally.
Here it might seem the Treasurer has a point. The 2014 Lowy Institute Poll found 60% of Australians are against the government allowing foreign companies to invest in agriculture.
But let’s also be clear about what exactly the Australian public objects to.
In 2015, research by the Australia-China Relations Institute and the Centre for the Study of Choice at UTS found that what most concerns the Australian public when foreign companies invest in Australia’s agricultural sector is the share of foreign ownership that will result, not the dollar value of the deal or the country the money is coming from.
So it’s true that many Australians would not be happy to see Dakang’s bid for Kidman go ahead because it would result in 80% foreign ownership. But they also wouldn’t be happy with CPC being 90% foreign- owned either, or with any number of other Australian agricultural assets that are entirely foreign-owned.
So why single out Dakang’s bid, if not for political opportunism?
In the end, it will be up to foreign investors to manage the political risk that now seems unavoidable when investing in Australian agriculture. One way they could do this is by partnering with a local investor and restricting themselves to a minority stake.
For some the commercial calculus of a minority holding might still work. But no doubt others will seek to mitigate the risk by simply investing elsewhere. With Australia producing less beef output than it potentially could, countries that compete with us in international markets — such as Brazil, India and the US — will be delighted.
Photo by Lisa Maree Williams/Getty Photos