ADM Targets GrainCorp to Tap Asia’s Food Demand, Topeka Says

Archer-Daniels-Midland Co. (ADM), the world’s biggest corn processor, is targeting Australia’s GrainCorp Ltd. (GNC) to add agricultural assets that will help it tap growing demand in Asia, according to Topeka Capital Markets Inc.

ADM raised its stake in eastern Australia’s largest grain handler by 10 percent to 14.9 percent, and aims to win board support for a cash takeover of the “well-managed company,” the Decatur, Illinois-based company said in an Oct. 19 statement.

GrainCorp, with a current market value of A$2 billion ($2.1 billion), will help ADM boost sales in Asia, the second- biggest region for GrainCorp’s products and services. Last year, revenue from Asia more than doubled compared with the previous 12 months. ADM last year earned 52 percent of its revenue in the U.S., data compiled by Bloomberg shows.

“This appears to be a well-placed asset for ADM in helping them penetrate the faster growing Asian markets,” Ian Horowitz, an analyst at Topeka Capital Markets Inc., said in an Oct. 19 note.

GrainCorp operates seven of the eight ports that ship grain in bulk from Australia’s east coast. The company, which also produces more than 1 million metric tons of malt annually, handles as much as 60 percent of the grain crop in eastern Australia, the world’s second-largest wheat exporter. The Sydney-based company has about 20 million tons of storage at more than 280 inland grain-handling sites, according to the company.

‘Well-Managed’

“GrainCorp is a well-managed company, and together with ADM would be better positioned to connect Australia’s farmers with growing global demand for crops and food, particularly in Asia and the Middle East,” ADM said in the statement.

The move underscores a push by companies including Glencore International Plc (GLEN) and Hong Kong-based commodity trading company Noble Group Ltd. to target agricultural assets, betting on growing demand from Asia as living standards rise and diets improve. GrainCorp is the only major publicly traded crop handler still in Australian hands since AWB Ltd. was stripped of its grain export monopoly in 2006.

Angus Trigg, a spokesman for GrainCorp, declined to comment on the potential talks with ADM when contacted by phone yesterday.

ADM acquired the additional stake at A$11.75 a share, 33 percent higher than GrainCorp’s last closing price, Australian stock exchange data shows. A takeover bid at that price would value GrainCorp at A$2.7 billion.

ADM declined 1.9 percent to $28.52 at the Oct. 19 close in New York. GrainCorp fell 2.1 percent in Sydney on Oct. 18 to A$8.85. Its shares have gained 14 percent this year.

GrainCorp is trading at a multiple of 8.12 times to earnings, the lowest among 11 comparable companies, according to data compiled by Bloomberg.

1916 Roots

There have been $44 billion of takeovers this year in Australia, the biggest exporter of iron ore, coal and alumina, and the second-biggest shipper of wheat. That compares with deal volume of $100 billion last year.

GrainCorp, which traces its roots to 1916 and the Grain Elevators Board of the New South Wales state agriculture department, has seen its revenue surge since Australia’s 2006 decision to strip AWB of its export monopoly. An inquiry found AWB was among firms that made illegal payments to win contracts from the former Iraq regime of Saddam Hussein under the United Nations’ oil-for-food program.

GrainCorp’s profit will rise 26 percent to A$217 million in the year to March 31, according to the average of seven analysts’ estimates compiled by Bloomberg.

To contact the reporter on this story: Elisabeth Behrmann in Sydney at ebehrmann1@bloomberg.net

To contact the editor responsible for this story: Jason Rogers at jrogers73@bloomberg.net

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