Australia: Inside the S Kidman sale process

At the end of April, just a few months before an election, Australian Treasurer Scott Morrison announced his preliminary decision to reject the Chinese-led A$371 million ($270 million; €240 million) bid for the S Kidman cattle business, Australia's biggest landholder. It was the second time he has blocked its sale.

Kidman managing director Greg Campbell told Private Equity International that Chinese investments' public unpopularity is at the heart of the treasurer's decision to block the sale, citing controversy around Chinese purchases of Sydney and Melbourne properties.

Kidman's preferred bidder was a consortium, 80 percent led by Chinese-owned Dakang Australia.

“Despite the Kidman farm assets being operated as term leases, rented from state governments on 30- to 42-year terms … the general public failed to distinguish the difference [from freehold] residential real estate,” Campbell said.

Crucially, Campbell said there was a precedent for the sale of large Australian farms to foreigners: UK-based Terra Firma's purchase of the Consolidated Pastoral Company (CPC) and its 57,000 square kilometres, in 2009. He added that after the treasurer first blocked Kidman's sale to Chinese interests in November, Kidman removed the militarily sensitive Anna Creek Station from the sale, reducing the portfolio by 24 percent to 77,000 square kilometres.

“The re-application … was considered by informed industry observers to be generally similar to the previously approved CPC purchase and therefore likely to be approved,” he said.

“If the treasurer was truly convinced that the large land area … denied a buying opportunity for Australians, he could have ruled against the foreign buyers in December.”

Instead, “the foreign buyers were engaged in a protracted series of requests for further information on their business structures, required to make or accept commitments on tax, employment [and] further investment”.

Campbell said that in late March the treasurer asked Kidman to indicate a preferred bidder: “This request was counter to the sale process which had been agreed with the treasurer's office in July 2015, where it was agreed the Foreign Investment Review Board and the treasurer would consider and rule on up to eight applications from foreign bidders so that the final 'auction' period of the sale could be run with approved buyers for the business.”

Campbell said this selection of a single buyer “arguably restricted the final price”.

PEI has been unable to confirm details with the Foreign Investment Review Board, but outside investors said the review appeared disorganised.

Campbell was frustrated, he said, by repeated requests to extend review deadlines. When the bidders refused an extension in mid-April, the treasurer implemented a 90-day stay-of-execution clause and initiated an independent inquiry.

Within a few days, Kidman and its sales team were asked to meet inquiry lead Graeme Samuels in Adelaide on 26 April, despite key people being unable to attend at short notice. “I was in the remote parts of the Northern Territory and had to drive 200 kilometres to [find] cell-phone coverage to attend the teleconference, which lasted 1.5 hours,” Campbell added.

Morrison revealed his provisional 'no' on 29 April, suggesting Kidman further break up its portfolio.

Campbell said it will seek buyers backed by New Zealand or the US, but by splitting its assets, Kidman could miss out on the 15 percent premium its size commands. His final recommendation? “A foreign investor requiring approval for a large agricultural deal [should] not apply for the Australian treasurer's approval within 12 months of an Australian election.”