Jurisdiction - Australia
Herbert Smith Freehills
Australia – Recent FIRB Conditions Attached To Acquisitions.

30 December, 2012


The Treasurer may impose conditions on the grant of approval of an acquisition to ensure that the acquisition is not contrary to the national interest or the general requirements of policy. 
A review of recent FIRB conditions, reveals three broad categories of undertakings:
  • undertakings regarding corporate governance
  • undertakings relating to market competition and pricing of goods and services; and
  • ‘ad hoc’ or industry-specific undertakings
The Australian Government welcomes foreign investment in the economy but the FIRB will carefully examine national interest issues when proposed acquisitions are notified—particularly where these arise in relation to foreign sovereign ownership. 


The Treasurer can: 

  1. block proposals that are contrary to the national interest; or
  2. apply conditions to acquisitions in such a way that, when implemented, they will no longer  contrary to the national interest.
Assessing the national interest (particularly in sensitive sectors such as the media, telecommunications, transport, defence, uranium and nuclear) allows the government to balance potential community sensitivities against the benefits of foreign investment. Conditions imposed are generally developed in conjunction with proponents and the government encourages potential investors to liaise with FIRB in this regard. In a number of recent acquisitions, the proponent(s) have prepared a list of voluntary undertakings for FIRB’s consideration that are designed to proactively address potential matters of national interest. 
A review of recent FIRB approvals, identifies three broad categories of conditions and voluntary undertakings (although there is some overlap between the categories):
1. Conditions/undertakings in relation to corporate governance. These conditions are particularly common in the case of investments by foreign governments and their related entities. The conditions ensure that proposed investments are commercial in nature and do not facilitate control by (government) entities with political or strategic objectives. 
2.Conditions/undertakings focused on competition and ensuring diversity of ownership within Australian industries. Such conditions will typically address management and pricing and are designed to ensure that a proposed investment will not result in a foreign investor gaining control over a market, market pricing or distribution channels.
3.‘Ad hoc’, ‘industry-specific’ or ‘transaction-specific’ conditions.The government determines national interest on a case-by-case basis. Investments in enterprises 
that are large employers or have a significant market share may raise more sensitivities than other proposals. Similarly, investments in sensitive sectors or by foreign governments may require unique conditions to ensure that national security and the operation of key regulatory structures is protected.
The balance of this article examines two recently approved acquisitions (dating from 2012 and 2010). The conditions imposed by the Treasurer show a consistent pattern and fall broadly within the three categories outlined above. The conditional approval of the merger between Yancoal Australia Limited and Gloucester Coal (and Yanzhou Coal Mining’s earlier acquisition of Felix Resources) also displays 
similar characteristics.
A joint proposal by Shandong RuYi Scientific & Technological Group Co (RuYi) and Lempriere Pty Ltd (Lempriere) (collectively ‘the Consortium’) to acquire the assets of Cubbie Group




The Cubbie Group is an agricultural company that holds around $475 million in assets and employs approximately 50 direct employees. The acquisition by RuYi and Lempriere (an Australian family-owned group of companies) was approved subject to a number of conditions.
Governance undertakings 
RuYi is required to:
  • sell down its interest in the Cubbie Group from 80% to 51% to an independent third party (or parties) within three years of completing the acquisition, and investigate the possibility of publicly listing Cubbie Group in order to achieve this sell down; and
  • ensure that its board representation remains no more than proportionate to its shareholding following the sell down.
In addition, the Consortium is required to establish a six-member board, including two independent Australian-resident directors and one director appointed by Lempriere. 
Management and pricing undertakings 
The Consortium undertook to FIRB:
  • to make offers of employment to all existing employees of Cubbie Group and maintain the existing arrangements including entitlements of those employees; 
  • have Cubbie Group managed and operated by a wholly owned subsidiary of Lempriere, including the marketing and sale of its cotton production on arms-length terms in line with international benchmarks and standard market practices; and
  • sell any surplus water allocations through the water market, which may include offering water entitlements for sale to the Commonwealth through a competitive tender process.
Other undertakings 
Based on the specific nature of Cubbie Group’s business and the concerns of the agricultural industry, the Consortium is also expressly required to:
  • comply with all relevant state and federal rules and regulations, including those in relation to water management in the Condamine-Balonne river system; and
  • investigate ways to improve the efficiency of water usage across Cubbie Group’s properties, including as part of its crop production.
An application by Minmetals Resources Limited (Minmetals Resources) to acquire Album Resources Private Limited and thereby its Australian mining assets that were acquired in 2009 by China Minmetals Non-ferrous Metals Co Ltd from OZ Minerals Limited
The 2009 acquisition was approved subject to a number of conditions and these conditions were transferred as part of a 2010 corporate reconstruction. 
Governance undertakings 
Minmetals Resources is required to:
  • maintain the operation of the mines using companies incorporated, headquartered and managed in Australia under a predominantly Australian management team; 
  • ensure that the CEO, CFO and at least two directors of each Australian subsidiary are principally resident in Australia; 
  • hold the majority of board meetings in Australia; and
  • lodge annual financial reports and directors’ reports with ASIC and make such reports available on an Australian website.
Management and pricing undertakings 
Minmetals Resources must also:
  • operate the former OZ Minerals assets as a separate business with commercial objectives, including the maximisation of product prices and long-term profitability and value to shareholders; and 
  • sell all minerals produced on arms-length terms through a sales team headquartered in Australia, with reference to international observable benchmarks in line with market practice. 
Other undertakings 
To ensure maximum growth in the Australian resources sector, and to continue OZ Minerals’ role as a key employer, Minmetals Resources is also required to:
  • maintain or increase production and employment levels at specified mines, re-open the Avebury Mine in Tasmania and develop the Dugald River Mining Project (subject to project feasibility and economic conditions); 
  • comply with Australian industrial relations laws and honour employee commitments; and 
  • maintain and, where possible, increase levels of Indigenous employment in local operations and honour agreements with Indigenous Australian communities.






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