It was a clear, warm evening in late December when executives of S. Kidman & Co gazed up at The World. The largest private residential ship on the planet had docked in Port Adelaide and they had arrived to dine aboard it at the invitation of one of Australia's richest people, Gina Rinehart.
It was a black-tie affair but more important than keeping to the dress code was that the men from one of Australia's oldest cattle empires had packed their passports, without which they wouldn't gain entry to the ship. The two-night stopover was the third visit to South Australia by the ship, which circumnavigates the globe year round, following an itinerary voted on by its residents.
It was fortuitous, then, that it arrived in Adelaide on December 21, 2016, the day after Rinehart had finalised the deal for her $386.5 million purchase of S. Kidman & Co through a joint venture she'd formed with China's Shanghai CRED. Rinehart owns two-thirds of the joint venture company, Australian Outback Beef, with Shanghai CRED owning the balance.
The deal was a game-changer for Rinehart, who'd already made a string of cattle station investments, diversifying her business interests beyond the iron ore from which she'd built a fortune estimated by the Bloomberg Billionaires Index to be $US12.7 billion ($16.7 billion). With the trophy asset of S. Kidman & Co, Rinehart would overnight become one of Australia's top five beef producers.
The dinner was to celebrate the company's future under the control of Rinehart, who owns at least one of The World's 165 exclusive apartments. She had spoken enthusiastically about her commitment to preserving the Kidman heritage and brand. However, it was a bittersweet evening for one of the guests, Will Abel Smith. The 53-year-old is a great-grandson of Sir Sidney Kidman, the cattleman who founded the eponymous business in 1899, going on to build it into Australia's biggest pastoral company. S. Kidman & Co covers vast tracts of grazing land across South Australia, Queensland, the Northern Territory and Western Australia, tallying 80,000 square kilometres; an area the size of Scotland.
Abel Smith had worked in the family business for three decades and, as livestock and marketing manager, was the only descendant still on the payroll at the time of the dinner. His connection to the Kidman heritage was strong; at his home in Adelaide, a Hugh Sawrey painting of Sidney Kidman hangs above the dining room fireplace.
"It has always been a part of my life," he says of the business. "It's been in my conscious since I was conscious."
Ugly split
One of Australia's most enduring family-owned pastoral companies, S. Kidman & Co had survived five generations before the "For Sale" sign went up in 2014, even after the Kidman name had been bred out of the family tree. For 117 years it had survived drought, disease, rising and falling cattle prices, and an ugly split within the family following Kidman's death in 1935.
At the time of its sale, S. Kidman & Co had 64 family and employee shareholders. Many of those family members had only a tenuous link to the colossal pastoral group. "The family had become investors in the company," confirms Don Manifold, managing partner of Ernst & Young in Adelaide, which sold the business. "They were fourth or fifth generation and there were very few family members working in the company."
Rinehart paid handsomely for the chain of nine cattle stations but in the back of Abel Smith's mind was the nagging question of what might have been. What if he'd been able to overcome generations of intra-family hostility – and years of bitter boardroom power plays leading up to the sale – to keep the cattle empire in family hands?
Abel Smith says he had a plan to transform the pastoral group to keep it in the family. Other Kidman descendants greet this suggestion with disbelief. Indeed, some members of his extended family say he was behind the epic struggle to sell S. Kidman & Co even as others, who retained an attachment and affection for the business, fought him.
The sale brought to a head Abel Smith's involvement with the company he loved. He resigned in April to manage his family investments, rather than take up a new role at S. Kidman & Co, which would have seen him become a brand ambassador for the company. Abel Smith controlled about 27 per cent of Kidman, which means his family would have pocketed almost $104 million from the sale.
Despite his nostalgia and regret at not being able to keep the company in the family, Abel Smith acknowledges the sale brought shareholders a greater price than he would have been able to achieve via his plan. He wishes only the best for the new owners. "They have got a great company," he says. "Gina Rinehart is one of the country's most successful business people and with her capital and focus it will be very interesting where she takes the business."
Passionate about the business
Tall, lean and affable, Abel Smith has agreed to speak to The Australian Financial Review Magazine at S. Kidman & Co's modest head office in Adelaide. A bronze bust of Kidman occupies a corner of the reception, while black-and-white photos of the man many called the "Cattle King" hang on the wall. A nearby hallway is lined with oil portraits of Kidman and his family.
Abel Smith admits that he was one of the main drivers of the sale. "I was instrumental in the sale at the end of the day," he says with a sigh. "But I was always hoping we might get change before it got to that point. When the change didn't come – I thought the sale was the best way forward."
His decision to join the sell side was cemented after he was overlooked to become the company's chairman in November 2010. For the first time in the pastoral company's history, the family shareholders had decided to appoint a chairman who wasn't from the Kidman lineage. Abel Smith's cousin, John Ayers jnr, who had served on the board for 40 years and is another great-grandson of Sidney Kidman, passed the chairmanship to John Crosby, a very capable outsider.
"That was when I knew the family connection was broken," says Abel Smith. "The CEO came into my office and said, 'I can't believe you didn't get the job.' And senior management echoed the same thing, as did station managers. John [Ayers] was pretty determined not to give me the role; we never got along. At that point I knew and I turned to the sell side and pushed hard from then on and finally got there."
Abel Smith's mother, Anne Kidman, was passionate about the business, he says, but in the years before her death in 2013, she too wanted to sell. "It was only disillusionment that got her at the end of the day. She didn't like how it was being run."
John Ayers jnr, like his cousin Abel Smith, is a pleasant, engaging and smart man. Both are widely respected in pastoral circles and are part of Adelaide's establishment. Ayers, 75, says Abel Smith was not appointed chairman because "the family made a decision".
"The shareholders made a decision and the board discussed the issues. There's no point in discussing any of the issues that may or may not have occurred," Ayers says. "If someone is making comments, they have to stand by their comments, and live with them. It just makes stories out of nothing. What I personally might feel is nothing to do with anyone else."
Ayers guards his privacy fiercely and has little to do with the media. It's a trait shared by much of his extended family but is in sharp contrast to his ancestor, Sidney Kidman, who courted the press here and abroad, with articles about him appearing in London's The Times and The New York Times.
As shareholder numbers grew over the decades it became more difficult to keep a lid on matters. S. Kidman & Co was classed as a public company once the number of shareholders hit 50, which meant it was subject to a similar amount of corporate reporting, governance and scrutiny as a listed company.
Jealousy and avarice
History is littered with examples of family businesses failing to survive beyond the second or third generations, either from lack of interest or talent among the descendants, or because of jealousy and avarice over the fortunes created by their fathers or grandfathers. S. Kidman & Co fared better than most.
"Being five generations in, it gets harder and harder," says Abel Smith. "We did well. It probably had a bit more in it if family could have come together on things but it didn't. My view is definitely these old, low-return family companies only survive if family revolve around the business and the business revolves around the family.
"Over the past 20 years, the decision was made by some of the older shareholders that it should be managed and run by outsiders. We abdicated our responsibilities and became a minority on our own board. Family was very much dissuaded, discouraged from working here. I had cousins who would have loved to have come in.
"John Ayers' thing was to make it more like a public company and run it that way and the older shareholders just went along with it and didn't question. Ultimately, it broke the chain. The family just drifted away and people started to think about what options there were. I represented a few people who were sellers."
The Kidman properties are located in remote parts of Australia, where the air is dry-roasted and the skies big; where the dust makes your skin and hair feel powdery and rough. It was in these austere parts of the country that Sidney Kidman amassed a portfolio of properties in a chain that spread his risk over different geographies and climates, giving him flexibility when moving his herd to markets. Kidman stock were bred in the north and centre, and fattened in Queensland's Channel Country, where the Georgina and Diamantina rivers and Cooper Creek make up the main river systems.
"What Sidney Kidman built was phenomenal," says Abel Smith. "He also set the culture for the business, which to this day has been fantastic. All our guys run the properties like they own them. Those who work for it are very proud and respectful of the heritage. We've got just the best people out in the bush because of that."
Sidney Kidman had a stake in 90 stations covering 336,698 square kilometres by the time he died, says Jill Bowen, who authored the definitive account of Sidney Kidman's life, Kidman: The Forgotten King.
"He was the biggest pastoral landholder in history," she says. "No one else anywhere owned, controlled or had a financial interest in pastoral land to the extent that he did. It's not as big now as it was in his heyday. He was a world standout."
Wrenching decision
The land holdings of S. Kidman & Co shrank significantly after the death of its founder. A battle soon erupted among his four children – Gertie Clover, Elma Reid, Edna Ayers and Walter Kidman – concerning who would run the business.
The fight would eventually force out Elma, who was married to Sid Reid, the company's managing director. Reid and Walter Kidman differed over who ran the business and the Reids took their share out of the Kidman empire in the form of a sizeable number of properties. The fractures among the family spread further. Bowen notes in her book that after the stoush Elma and Edna rarely spoke again. It was the same for Edna and Gertie.
One family member suggests in the book that Edna Ayers was jealous of Sid Reid and happy for him to be out of the way to enable her son, John Ayers snr, to move into the company's management. The departure of the Reids left three family shareholding blocks, the Ayers, Clovers and Kidmans. Descendants of Gertie mostly resided in Britain.
London-based Joanna Clover retired from the Kidman board in December 2014, appointing in her place a fourth-generation family member. It's understood to have been a wrenching decision for her to agree to sell the business. A cousin of Abel Smith and John Ayers, and a great-granddaughter of Sidney Kidman, she declines to comment: "I have no wish to discuss the Kidman sale."
The make-up of S. Kidman & Co's portfolio of properties would continue to change over the years, right up until it was sold to Rinehart and Shanghai CRED. The federal government made the acquisition conditional on the divestment of the cattle property Anna Creek, whose land overlaps with the defence-sensitive Woomera Prohibited Area. Shanghai CRED is run by billionaire property developer Gui Guojie. He's worked for the Chinese government linking private and state companies and in building Chinese investment overseas.
Handsome price
There were more than 600 expressions of interest to buy S. Kidman & Co, which had nine cattle stations, excluding Anna Creek, a stud farm and a feedlot. Transport billionaire Lindsay Fox was at one point keen on the company, as was a group of Australian rural families in a consortium called BBHO.
But it was the structure of Rinehart's bid, which would keep S. Kidman & Co in Australian control and intact rather than broken up, that made her the victor. The handsome price she and Shanghai CRED paid helped seal the deal. There are understood to have been bids of more than $400 million but they didn't tick all the boxes.
Earlier bids involving China's Dakang Group, which is controlled by Shanghai Pengxin, also changed the course of a sale that ended up taking 21 months, three times longer than Ernst & Young's initial expectations.
Those majority Chinese bids triggered a harsh public backlash. Australians across politics, business and the general public, including those who'd never heard of S. Kidman & Co, were outraged at the possibility of the cattle group falling into foreign ownership. Voices railed against the potential sale of this part of 'Straya to foreigners, code for "the Chinese". Talkback radio, social media, blogs and the traditional media were awash with it.
The Kidman family shareholders, Ernst & Young, and the federal government were stunned. "The extent of community feeling on it and the whole emotion of it took me by surprise," says Ernst & Young's Manifold. "People in the street would stop me and tell me why it was wrong that we're selling Australia. My own mum would ring me and start with the line, 'Don, do Australians still own Australia?' I would say, 'Of course they do Mum.'" Manifold would then explain how important foreign investment was for creating jobs in Australia.
However, he understood the decision taken by Treasurer Scott Morrison who, following the public outrage, said selling S. Kidman & Co outright to a foreign party would, because of its size and the significance of its portfolio of properties, be "contrary to the national interest". Behind Morrison's statement was a government wishing to stymie not only an electoral backlash but the risk of damaging demands for greater protectionism.
After the sale, Rinehart said the government's approach "enabled a local Australian company to pay a fair market price and retain Kidman in Australian control".
Manifold observes that these are very difficult decisions for politicians. "Among the Australian community there seems to be an aversion in particular to Chinese owning Australian land. I think that concern is misplaced."
Proud Australian
The British have long invested in Australia's beef industry. Indeed, the nation's biggest beef producer, the Australian Agricultural Company, AACo, is almost 40 per cent owned by British billionaire Joe Lewis. He founded private equity group Tavistock, which counts among its assets the English Premier League club Tottenham Hotspur.
Abel Smith describes the public outcry as "unbelievable". "The public were very xenophobic about it." But he saves his strongest criticism for the federal Coalition: "The bloody government was more worried about covering their arse, and keeping their jobs, than they were about introducing this huge sovereign risk into this economy, where they tell people who they can sell their business to. They are disgraceful."
Bowen writes in her book about what a proud Australian Sidney Kidman was, demonstrated in many ways, including his assistance to those who fought in World War I by funding armoured battle planes, ambulances, bales of wool and providing horses and beef. "He'd have hated to see it go into foreign hands," Bowen says. "He was such a patriotic Australian."
Lost in the public debate about ownership was the fact that many of the Kidman properties are located on arid or semi-arid land, which cakes and cracks. It's hardly prime agricultural land. As well, almost all of S. Kidman & Co's properties are leased from state and federal governments. While not due to expire for another four decades, the government leases mean no foreigner could ever own the land – it's not freehold.
S. Kidman & Co's Tungali feedlot sits about an hour and a half east of Adelaide. Surrounded by rolling hills that look out towards the Riverlands area and the Murray River, it's where cattle are fattened for sale. As we drive around the feedlot, Abel Smith, who's dressed in jeans, a blue shirt, R. M. Williams boots and a Driza-Bone vest with S. Kidman & Co stitched onto it, talks about how he came to work at the family business.
He never wanted to do anything else. His mother, too, wanted him to join the family firm. After finishing school at Geelong Grammar he attended Longreach Pastoral College, following which he did an apprenticeship at the North Australian Pastoral Company. He then worked for Dalgety before finally joining S. Kidman & Co in his mid-20s.
What he would like to have happened to S. Kidman & Co, before the decision at the end of 2014 to put it up for public sale, was to sell some of it but keep a share in family hands, allowing those family members who wanted to remain invested to do so. "I would have been happy to value the thing, shrink the country a bit, and keep the very best properties. It'd still have been a very substantial enterprise but with less shareholders, which is probably not a bad thing."
Agreed to sell
By offloading the lesser-performing properties the capital raised could have been used for a buyback of shares, allowing the shareholders who wanted to exit to do so, he says. The better properties that Abel Smith says he would have kept included Helen Springs, Durham Downs and Morney Plains, which combined could carry a herd of 100,000. S. Kidman & Co presently carries about 171,000 cattle.
"That was my plan. My heart was in it completely and I wanted to fix it and continue on but when I couldn't do that, it was time to sell," he says. "Everyone wanted to get full tote odds when it came right down to it. The only way to do that is to sell up but I would have been happy to value it and pay people out. At the end of the day we got a higher valuation by selling it than if it was just done internally."
At a family shareholder meeting on November 20, 2014, the Kidman descendants all finally agreed to sell. "One hundred per cent of the shareholders signed the form to say they would sell," notes Ayers.
Abel Smith says the decision only came after the Clover family shareholder block sought a legal opinion as to whether his employment in the business posed a conflict of interest with him being a shareholder in the sale. Joanna Clover wouldn't comment, though Abel Smith acknowledges some of the British-based family shareholders may have wanted at one point to remain as investors in the company. He says legal advice found his employee-shareholder status posed no conflict.
Behind the eventual decision of all the S. Kidman & Co shareholders to sell might have been the realisation that a sixth generation of descendants would make the ownership of the pastoral group more complex. As well, it would further dilute the dividends paid to family members.
"The third generation could live off the dividends but the fifth generation couldn't – it was time to get their money out," says a long-time observer of S. Kidman & Co. In 2015, $18 million in dividends were paid. In 2016, ahead of the sale, this dropped to $2.36 million.
The decision to sell might also have signalled that the family shareholders had finally buried any festering animus. But it wasn't to be. On November 21, 2014, S. Kidman & Co's board met ahead of its annual general meeting. There, Abel Smith was kicked off the board by the majority of the family shareholders. He must have felt as the Kidman cattle do, arriving at the abattoir only to realise at the last minute their fate.
"When you're pushing for change you're going to piss people off," he says. "I might have been surprised it didn't happen sooner. They just wanted to send a message. It was stupid. One of the independent directors said to me later, 'I reckon that's one of the worst things I have seen – a real low act.' That's what happens sometimes in family businesses."
There's a catch in his voice, belying his calm appearance, and he coughs. Abel Smith had been a director for 23 years. As a major shareholder he was able to nominate a director to replace himself and he chose his brother-in-law Mark Grimshaw.
Asked why Abel Smith was removed from the board, John Ayers says: "Like all members, they come up for re-election and he wasn't re-elected." He says he wasn't aware of Abel Smith's plan to try to keep the business in the family. "I've never seen it. That's not to say he didn't have it."
Abel Smith says shrinking the business "was discussed by the family directors a couple of times prior to the sale being agreed", as they looked for a way forward. "We looked at a lot of things but all had different ideas, which was part of the problem. Some worried the business would no longer be the same. Most were concerned that the only way for all to do the best was through a full sale."
Perfect selling environment
In the first quarter of 2015, S. Kidman & Co sold its investment portfolio, held mostly in blue-chip stocks, booking a $25 million profit, and clearing the deck for the sale of the business. The proceeds from the investment portfolio significantly boosted S. Kidman & Co's annual profit as of June 30, 2015 to $50.5 million. A year later the company's annual net profit was $26.7 million.
Despite the years it took to put Kidman on the sale block, the timing of its disposal could not have been better. Record high beef exports and improved prices, thanks in part to a big drop in Australia's overall cattle herd, coupled with recovering land values, all aligned to create the perfect selling environment for cattle stations.
Frank Peacocke, a director with valuers Herron Todd White, says prices for tier-one cattle properties have soared 30 per cent in the past year. "It's hard to buy a property at the moment of significant scale as there's not a huge number on the market. It's tightly held." He says Rinehart and Shanghai CRED paid "a strong price" for S. Kidman & Co, but adds such pastoral companies "don't come up every day".
The record sale for an Australian pastoral company was set in 2003 when AMP sold the Stanbroke Pastoral Company for $490 million. In 2009, James Packer's Consolidated Pastoral Company (CPC) sold for about $450 million to London-based private equity group Terra Firma.
Rinehart is not the only billionaire to have made significant agricultural investments in recent years. Among the modern-day beef barons are mining billionaire Andrew Forrest and retail billionaires Brett Blundy and Gerry Harvey.
Agriculture, as with mining, is not an investment for the faint-hearted. There are lots of risks: weather, disease, staff turnover, accidents, regulation, as well as changes in international markets. Rinehart is estimated to have invested at least $500 million into the beef sector in recent years while putting together a network of 16 cattle stations. She is prevented by foreign ownership laws from merging S. Kidman & Co with her other cattle investments into one company. Even so, it's expected she'll find synergies in the overall portfolio.
"The returns from her aggregation could be very good but it's unlikely we'll see those figures," says Peacocke; Rinehart's companies are private. An independent expert determined that S. Kidman & Co had an enterprise value between $365 million and $401 million.
Long-term approach
Adam Giles, a general manager of Hancock Prospecting, under which Rinehart's pastoral division sits, says that "for the foreseeable future all returns will be invested into infrastructure, including new technology, to improve our properties and improve safety standards. We are taking a long-term investment approach."
Rinehart's stated intention is to build a profitable, integrated agribusiness group. Her other agricultural investments include dairy assets. The purchase of S. Kidman & Co has thrown up some diversification opportunities for the billionaire. A few of the Kidman cattle properties sit above some of Australia's biggest shale gas deposits in the Cooper and Eromanga basins, where companies such as Santos and Beach Energy already have exploration licences, should she ever be interested.
Rinehart's cattle stations combined with those of Kidman make her a top five Australian beef producer as measured by herd. The biggest are AACo, CPC and NAPCO, according to industry analysts. "The combined Kidman and Hancock herd will reach 300,000 head, placing Hancock in the top three beef producers in Australia," Rinehart said in statement on Australia Day, while visiting some of the Kidman stations. Almost three-quarters of Australian beef is exported and the largest market for it by volume is the United States. Kidman exports 15,000 tonnes of beef annually to the US, Japan and south-east Asia. Observers believe Rinehart is focused on growing demand for beef in Asia, in particular China.
In February, Shanghai CRED, which has interests in Australia's cattle industry outside of its venture with Rinehart, completed its inaugural shipment of live cattle to China. Rinehart's partnership with Shanghai CRED, and connections in China through her mining interests, mean she's well positioned to capitalise on growth in the cattle trade with Asia.
Of Australian beef producers, S.Kidman & Co is said to be among the least exposed to the live cattle export markets of Indonesia, Vietnam and China. The live beef cattle trade between Australia and China could eventually involve as many as 1 million cattle shipped every year to custom-built feedlots and abattoirs along China's east coast. It could more than double the size of the current live cattle industry. Last year, 1 million cattle worth $1.5 billion were exported live, of which the majority went to Indonesia and Vietnam. The industry received a boost in March when the Chinese and Australian governments significantly expanded exports of chilled beef to China.
As for Abel Smith, with some of the sale proceeds in his back pocket, he may look at investments in agriculture. "It's what I love," he says. While wistful for what might have been, he knows the shareholders got a better price than they would have received if he'd got any traction with his plan. "I'll always have the heritage," he says with a smile. "You can't take it away."
