Australia Blocks A.D.M.’s $2.7 Billion Bid for GrainCorp

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A harvester in the Australian wheat belt area of Wimmera.Credit William West/Agence France-Presse — Getty Images

In the first major test of the pro-business platform of Australia’s new government, the country’s treasurer rejected on Friday a $2.7 billion takeover bid for GrainCorp Ltd. by Archer Daniels Midland, the American agribusiness giant, saying the deal was against the national interest.

In the surprise decision, the treasurer, Joe Hockey, announced that Australia’s foreign investment review board had failed to reach a consensus on the matter and that he personally made the call to block the deal, nodding to opposition from smaller grain growers and the public.

‘‘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,’’ Mr. Hockey said in a statement.

‘‘Allowing it to proceed could risk undermining public support for the foreign investment regime and ongoing foreign investment more generally,’’ he said. ‘‘This would not be in our national interest.’’

The decision may raise concerns among foreign investors over the country’s direction under the new government. The Australian prime minister, Tony Abbott, who heads the conservative Liberal-National coalition that took office in September — ousting Kevin Rudd and ending the Labor Party’s six years in power — has made a pro-business stance central to his platform. Some business leaders and political rivals cautioned that the rejection of the takeover bid could be a sign of backsliding from that pledge.

‘‘On the face of it, the treasurer’s decision to reject A.D.M.’s proposed acquisition of GrainCorp risks undermining the federal government’s statement that Australia is open for business,’’ Jennifer Westacott, the chief executive of the Business Council of Australia, said in a statement. ‘‘It is important this decision does not increase uncertainty in the global community about the rules of the game on competition and Australia’s policy settings on foreign investment generally.’’

While Mr. Abbott’s conservative Liberals draws support from among Australia’s business elite, the political base of their partners in the coalition government, the Nationals, is overwhelmingly rural — and anxious about foreign ownership of agricultural assets.

Analysts said that Mr. Hockey’s decision highlighted the contrasts between the two coalition partners. The Nationals, led by the deputy prime minister, Warren Truss, have long been vocal in their opposition to the A.D.M. offer. Mr. Truss, who warned at a party conference in June that the previous government had ‘‘lost control of our nation’s agribusinesses,’’ praised Mr. Hockey’s decision.

‘‘The Australian grain industry must now get on with building a strong future for itself and growing its export markets across the globe,’’ he said in a statement. ‘‘I welcome the fact that Australia will continue to have a major locally-owned company dedicated to furthering the interests of the Australian industry.’’

Chris Bowen, the Labor Party’s spokesman on treasury issues, accused Mr. Hockey of caving under political pressure from the Nationals. Mr. Hockey, he said, was scuttling a multibillion-dollar deal to appeal to the rural voters.

‘‘Today Joe Hockey has sent a message to everybody who is thinking of investing in Australia, and that message is: ‘I’ll only tick it off if it passes the popularity test,’’’ he said.

Foreign ownership of strategic assets, particularly those related to agribusiness, has long been a contentious subject in Australia. In 2011, Wayne Swan, then the treasurer, rejected a proposed merger between the Singapore and Australian stock markets. In 2001, a bid by Royal Dutch Shell, the European oil and natural gas giant, for Woodside Petroleum was also blocked by the government.

Archer Daniels Midland, based in Decatur, Ill., had sought to acquire GrainCorp for more than a year, and this past week it offered to invest more in Australia if it succeeded in its quest for one of the country’s biggest grain producers. The sweetened deal was worth 3 billion Australian dollars, or $2.7 billion, in cash and dividends — or 3.4 billion Australian dollars including assumption of GrainCorp’s net debt. In addition, A.D.M. had pledged to invest an additional 500 million Australian dollars in the domestic grain business.

By its own estimates, GrainCorp handles 75 percent of eastern Australia’s annual grain production and 90 percent of that region’s bulk grain exports. The deal would have helped the American company expand its international footprint and tap rising demand from growing and increasingly wealthy countries in Asia, including China, a top export market for Australian agricultural products.

‘‘Throughout this process, we worked constructively to create an arrangement that would be in Australia’s best interests and made substantial commitments to address issues that were important to stakeholders,’’ Patricia A. Woertz, the chairwoman and chief executive of A.D.M., said in a statement. ‘‘We are disappointed by this decision.’’

Don Taylor, the chairman of GrainCorp, cautioned that the impact of the government’s move would not be limited to just the one deal. ‘‘Today’s events will have enduring implications that will be felt not only by our shareholders but by the entire industry,’’ he said in a statement. ‘‘Australian agriculture has been prevented from realizing the potential benefits from the significant capital A.D.M. would have invested in the long term future of the industry.’’

Shares in GrainCorp fell as much as 26 percent in Sydney on Friday, briefly touching a 20-month low of 8.25 Australian dollars before recovering a bit. The stock closed Thursday at 11.20 dollars, still well below A.D.M.’s bid of 12.20 dollars a share, reflecting investors’ skepticism that the deal would succeed.

Despite the rejection, Archer Daniels Midland retains a 19.8 percent stake in GrainCorp. In his statement, Mr. Hockey, the treasurer, said he would allow the American company to increase its stake to as much as 24.9 percent. He sought to dismiss concerns that the government was backing away from its pro-business stance. Instead, he highlighted how Australia had dismantled its monopoly on wheat exports as recently as 2008, and said that more time was needed for smaller players in the industry to raise their competitiveness.

‘‘Of the more than 130 applications that have come to my desk since the election, only one has been declined and this is it,’’ Mr. Hockey said. ‘‘I have acted in the national interest. The fact is the industry is going through transition and now is not the right time to have all the major players foreign owned.’’

Neil Gough reported from Hong Kong, and Matt Siegel from Sydney, Australia.