THE giant state-owned China Investment Corporation could emerge with almost half of the nation’s oldest dairy producer under a proposed $200 million deal that will test the commitment of the new government to foreign investment.
The Australian has learned that New Zealand’s biggest company, the global dairy group Fonterra, in a partnership with CIC, is proposing to buy, in whole or in part, the Tasmania-based Van Diemen’s Land, or VDL.
VDL controls 25 dairy farms and 30,000 dairy stock in the northwest of Tasmania. Founded in 1825, VDL is one of Australia’s oldest companies and is owned by the investment management arm of the New Plymouth District Council in New Zealand, a dairy farming stronghold in New Zealand.
Should the deal proceed, it is likely to test the relationship between the Liberal Party and the Nationals over foreign investment policy.
It also adds momentum to the flow of major deals that had started to speed up ahead of the Coalition victory at the weekend.
This week, Californian giant Jacobs Engineering swooped on Australian-owned Sinclair Knight Merz in a $1.3 billion deal, and the Gulf sovereign wealth fund, the Abu Dhabi Investment Authority, bought Australia’s largest hotel owner, Tourism Asset Holdings for $800m.
VDL has been widely flagged as for sale, and CIC has previously been tipped as a potential buyer of a stake in the business.
However, it is believed that the company could now be sold in its entirety, with the $US200bn Chinese sovereign wealth fund taking a 49 per cent interest and Fonterra securing the remainder.
Fonterra is a multinational dairy co-operative owned by 10,600 New Zealand farmers. The company is responsible for about 30 per cent of the world’s dairy exports, with revenue exceeding $NZ19.87bn ($17.2bn).
VDL supplies Fonterra — the world’s largest dairy exporter — from its farms. VDL’s operations includes a Dairy Support Unit and a stand-alone Heifer Rearing Operation, which the dairy giant would not normally buy, and could be looked on unfavourably by the New Zealand dairy industry, which would prefer the company to make an acquisition on home shores.
In November, The Wall Street Journal reported that CIC held talks with Fonterra about investing in the New Zealand dairy giant’s newly created shareholder fund, with an interest in securing its own milk supply.
Fonterra is believed to be preparing to partner with CIC to buy half of the VDL business, in what is thought to be a move to repair its relationship with the Chinese following the company’s recent milk product scare that sparked a major product recall in global markets, including China, one of Fonterra’s largest offshore markets.
While the recall was later found by the NZ government to be unnecessary, the contamination scare was thought to have damaged NZ’s image as an exporter of top-quality foods, and prompted Fonterra’s chief executive Theo Spierings to travel to China and offer «deep apologies».
The $89 billion Future Fund had previously been in talks about partnering with CIC on a deal to buy VDL, sources said.
Last night, VDL chief executive Michael Guerin would not comment on the speculation about a purchase of the company by Fonterra and CIC, but said that the company had recently flagged it was embarking on a capital raising, and that various proposals by parties were being considered.
Fonterra declined to comment.
Chinese companies have been searching for Australian agricultural investments on the back of strong demand for food in China, with Cubbie Station selling last year to Chinese partners Shandong Ruyi for about $240m.
However, the deals have created political controversy about foreign ownership.
The Foreign Investment Review Board is required to review business deals that are worth more than $243m. But the VDL deal, which is below that threshold, is likely to be subject to a review since any acquisitions involving a state-owned enterprise triggers FIRB scrutiny.
Incoming prime minister Tony Abbott has talked up plans to lower the threshold for FIRB to review acquisitions of agricultural land and agribusiness.
However, the soon-to-be deputy prime minister, Nationals leader Warren Truss, has argued foreign takeovers could cause Australia to lose control of its own destiny.
He has expressed «serious reservations» over the $3.4bn foreign takeover of GrainCorp, questioning whether the purchase by foreign agribusiness giant Archer Daniels Midland is in the national interest.
Last week, some of the nation’s most senior deal-makers said a change of government and the end of election uncertainty would boost moribund capital markets and lift the appetite for takeovers.
Senior investment bankers told The Weekend Australian that a win by the Coalition would replace the «toxic» relationship between Labor and the business sector and end policy uncertainty.
Source: The Australian
