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Investors criticise latest S Kidman knockback

Australian Treasurer Scott Morrison's preliminary decision is to block the bid, as investors called the review process "badly and unpredictably" managed.

Australian Treasurer Scott Morrison’s preliminary decision to block the S Kidman sale for the second time is part of a process that has been “badly and unpredictably” managed by the Foreign Investment Review Board (FIRB), investors said.

Chinese dairy giant Shanghai Pengxin’s Australian interest, Dakang Australia, agreed more than two weeks ago to buy S Kidman for A$370.7 million ($289.76 million; €255.92 million) in consortium with Australian Rural Capital (ARC).

The Dakang and ARC offer is understood to have been at least A$20 million more than the highest local bid. However, nine days after setting up an external review and delaying the FIRB’s decision on whether to approve the deal by three months, Australian Treasurer Scott Morrison has issued a statement saying he is likely to block it, as “contrary to national interest”. With holdings representing over 1 percent of Australia’s territory, S Kidman is the country’s largest private property holder.

“I have today made my concerns known to the applicant and provided them with a natural justice period in which they may respond and consider how they wish to proceed. The applicant shall have until next Tuesday 3 May 2016 to respond,” he told journalists at a press conference.

“It’s been a lot of back and forth,” said one agri fund manager whose clients include some Chinese investors as well as a majority of Australians. “It seems like they could have voiced these concerns more directly in the first place, and from the outside, it is worrying they didn’t.”

Several other managers contacted by Agri Investor agreed FIRB’s handling of the sale had been drawn out and confusing.

The FIRB first blocked the sale of S Kidman to Dakang in November, citing its size and its proximity to a weapons testing range. ARC, which would have taken 20 percent of S Kidman under the latest deal, was not involved in Dakang’s first bid.

When the Anna Creek property was cut out of the deal and the time for bidding extended, Morison said in a statement: “I am encouraged that my decision has led to today’s development which enables Australian parties to make a bid for S Kidman.”

Morrison cited “domestic interest” as one of the reasons to block the bid.

“While the review found the sale process followed a satisfactory commercial practice that offered opportunity to Australian parties to make an offer, the review also found there remains significant domestic interest in Kidman,” said Morrison in a press conference.

“I have concerns that the form in which the Kidman portfolio has been offered as a single aggregated asset has rendered it difficult for Australian bidders to be able to make a competitive bid. The size of the asset makes it difficult for any single Australian group to acquire the entire operation.”

A source close to the deal had told Agri Investor that the Treasury had then asked bidders for numerous extension requests, and finally asked them to delay until 1 August. The bidders had denied them the extension, prompting the Treasury use a 90 day stay of execution clause in Australia’s Foreign Acquisitions and Takeovers Act to extend the deadline.

“There are not too many jurisdictions anywhere in the world where foreign acquisition of large holdings would be permitted,” said Morison, adding, “Foreign investment has underpinned the development of our nation and we must continue to attract the strong inflows of foreign capital that our economy requires.”