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Australia – Taking A Step Back: What Can We Learn From FIRB Rejections?

16 April, 2014


  • Treasurer Joe Hockey’s decision to reject Archer Daniels Midland’s (ADM) takeover bid for GrainCorp attracted significant national and international commentary
  • Stepping back from the media scrutiny, we ask – what (if anything) do FIRB’s handful of outright rejections have in common and what can we learn from the ADM decision


FIRB Rejections

When rejecting the ADM takeover, the Treasurer expressly noted that he had only prohibited one transaction out of 131 during his tenure. In fact, the ADM decision is one of only a handful of “significant” transactions that have been blocked outright on national interest grounds (being Shell / Woodside, Singapore Stock Exchange / ASX and, now, ADM / GrainCorp). Whilst these rejections do not necessarily create legal precedents – as each FIRB application is determined based on unique facts – they give insight into the decision-making process for foreign investment applications. Such insights can be helpful when considering how to approach FIRB on future applications.

Competition Grounds – A Key Factor

The Treasurer cited predominantly competition grounds when rejecting ADM’s proposal. GrainCorp is Australia’s largest listed agribusiness and it handles approximately 85% of eastern Australia’s bulk grain exports. The Treasurer noted that the Australian grains industry is an important export industry, leading to concerns that the proposed acquisition could reduce competition and impede growers’ ability to access the grain storage, logistics and distribution network. The Treasurer also cited the high level of concern expressed by stakeholders and the risk that the transaction could undermine public support for Australia’s foreign investment regime. 

Similar “key asset” concerns (although with less explicit reference to stakeholder views) are evident in each of the Singapore Stock Exchange / ASX and Shell / Woodside decisions:


  • When former Treasurer Wayne Swan rejected Singapore Stock Exchange’s planned takeover of the ASX, the main reason was that it would result in the ASX becoming subsumed by a smaller regional exchange (that is also a competitor). The then Treasurer expressly referred to the “central role” that ASX (as Australia’s primary equities and derivatives exchange and sole clearing house) plays in Australia’s economic wellbeing and development. 
  • Former Treasurer Peter Costello, in blocking Shell’s takeover of Woodside, also noted the significance of the North-West Shelf natural gas project and the major export implications for Australia. Mr Costello concluded that, despite assurances, Shell had not be able to convince the Government that development of the project would proceed in line with Australia’s national interest, rather than that of the global Shell group.

Each of the three Treasurers effectively concluded that, whilst Australia welcomes foreign investment, some investment proposals do not offer sufficient benefits to warrant a loss of sovereignty over a major national asset or project. Although, prior to the ADM decision, the Treasurer has not explicitly referenced community sentiment, it seems safe to say that stakeholder pressure and community concerns played some role in each of the three decisions. 

Lessons Learned

Having regard to the above decisions and other high-profile foreign investment deals (including the takeover of OzMinerals by China’s Minmetals, Shandong RuYi Group’s acquisition of Cubbie Station and the acquisition of Felix Resources by Chinese state-owned Yanzhou Coal), we have the following key messages for prospective foreign investors:

Competition (And The Likely Development Of Strategic Assets) Is A Key Consideration

FIRB and the Treasurer are likely to carefully evaluate any proposals that result in critical infrastructure or significant assets becoming wholly controlled by foreign investors. Of particular relevance is whether the prospective investor can provide comfort that the relevant asset or infrastructure will be developed in a way that supports Australia’s national interest.

The National Interest Test Is Fluid And Has Regard To Both Positive And Negative Impacts

The ‘national interest’ factors included in FIRB’s policy are not exhaustive and should be considered in broad terms by prospective investors. In addition to competition within the Australian market, FIRB may also consider the impact that a proposed investment has on the make-up of the global industry. An investment that enhances economic activity is less likely to be contrary to the national interest.

“Politics” Matters

Prospective investors are well advised to proactively manage stakeholders and the media. Engaging with employees, trading partners and special interest groups may give a bidder the opportunity to demonstrate that its investment will support Australia’s national interest (and the growth of the relevant industry). 

A Rejection May Not Be A Permanent Roadblock

In each of the three rejections cited above, the Treasurer (in one form or another) left the door ajar for future investment proposals. Whilst outright rejections may be relatively uncommon, there are a number of transactions where FIRB has imposed conditions or renegotiated the terms of a proposed acquisition to accommodate FIRB concerns.


herbert smith Freehills


For further information, please contact:


Matthew Fitzgerald, Partner, Herbert Smith Freehills

[email protected]


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