Question of the Week

Question of the week – Will the government intervene with a Graincorp sale?

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Q. Do you think the Australian Government will be ok about a sale of Graincorp? It’s a bit like selling off Qantas after it divided into Qantas and Jetstar, isn’t it? The  Government stepped in then and stopped the sale, didn’t they? If Graincorp play [Archer Daniels Midland has made a bid but talks have stalled] begins again I presume the Government will step in and stop it?

A. I don’t think that they are going to be keen to step in with Graincorp. They won’t do anything until they get the Foreign Investment Review Board recommendation – and if the FIRB says “yes”, it is a very brave government that goes against this (I will stand corrected – the last one I can recall is Shell’s bid for Woodside – Costello said no).

I am not sure that you are right about Qantas in that under the original privatisation legislation of 1995, the Act prohibited foreign shareholdings of greater than 50%. That remains in place today. As I recall it – they didn’t actually “step in” or make a decision – they just didn’t agree to change the legislation. Maybe I am splitting hairs, however I think they are quite different actions.

Also, have a look at the market price. While the Board says that the company is ‘undervalued’, if the market really believed that the Government would say “no”, I think it would be unlikely that the share price would be sitting around the offer price.

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