ADM Courts Australia’s GrainCorp to Feed Demand in Asia

ADM Buys Stake in Australia’s GrainCorp, Seeks Talks
The GrainCorp Ltd. logo is displayed outside a warehouse used for holding grain for export, at the Port of Portland, in Portland, Australia. Photographer: Carla Gottgens/Bloomberg

Archer-Daniels-Midland Co., the world’s biggest corn processor, is seeking talks with GrainCorp Ltd. about a potential takeover after boosting its stake in the grain handler.

“ADM has approached GrainCorp with the aim of arriving at an agreement under which GrainCorp’s board of directors would recommend to its shareholders a cash acquisition by ADM,” the Decatur, Illinois-based company said today in a statement. It has increased its stake in GrainCorp to 14.9 percent from 4.9 percent previously.

Eastern Australia’s largest grain handler would review any proposal from ADM to maximize value for shareholders, it said in a separate statement. GrainCorp, which has a market value of A$2 billion ($2.07 billion), halted trading in Sydney today.

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

“Anyone that wants a significant presence in Australia would have to look at it,” Belinda Moore, a Brisbane-based analyst at RBS Morgans Ltd., said by phone. “We expect a number of parties could be interested in GrainCorp and a bidding war may emerge,” Moore said earlier today in an e-mail.

Two Trades

Two trades of 22.81 million shares each in GrainCorp crossed at 7:05 a.m. Sydney time today at A$11.75 a share, 33 percent higher than yesterday’s 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 close in New York. GrainCorp fell 2.1 percent in Sydney yesterday to A$8.85. Its shares have gained 14 percent this year.

Trading of GrainCorp’s shares were halted until Oct. 23 or until a statement is made.

“Our investment in GrainCorp is part of our ongoing portfolio management and is consistent with our strategy of growing our agricultural-services and oilseeds businesses by investing in key supply regions outside the United States,” ADM Chairman and CEO Patricia Woertz said in her company’s statement.

Possible Bidders

David Weintraub, an ADM spokesman, declined to provide further comment regarding the deal when reached by phone today.

A takeover of GrainCorp, which operates seven of the eight ports that ship grain in bulk from Australia’s east coast, was “inevitable,” Citigroup Inc. said in March. The company may lure a bid of A$2.2 billion, RBS Morgans said at the time.

“Any of the Asian trading companies could perhaps have an interest,” Moore said, naming Wilmar International Ltd., the world’s biggest palm oil processor, Singaporean raw-materials trader Olam International Ltd., White Plains, New York-based Bunge Ltd., Noble and Japan’s Marubeni Corp.

“Rural assets in Australia have been of interest to quite a variance of people,” Jamie Spiteri, head dealer at Shaw Stockbroking Ltd., said by phone from Sydney. “You’ve had interest out of the Arab states, out of India, you’ve had interest out of China and out of North America at different stages.”

Implied Premium

GrainCorp is trading at a multiple of 8.12 times to earnings, the lowest among 11 comparable companies, according to data compiled by Bloomberg. RBS Morgans’ Moore, valuing the company at A$9.77 a share, said the usual takeover premium of 20 percent to 30 percent implied a takeover price of A$11.73 to A$12.70 a share.

Canada’s Agrium Inc. in 2010 bought AWB, Australia’s former monopoly wheat trader, for A$1.8 billion, while Wilmar bought Australia’s biggest sugar company, Sucrogen Ltd., for A$1.75 billion the same year. Wilmar in February also took a 10 percent stake in Goodman Fielder Ltd., the nation’s largest baker. Glencore in March offered C$6.1 billion ($6.14 billion) for Viterra Inc.’s grain assets in Canada and Australia. The takeover is expected to be completed by Nov. 15, Viterra said last month.

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, handles as much as 60 percent of eastern Australia’s grain crop and has about 20 million metric tons of storage at more than 280 inland grain-handling sites, according to the company.

Its revenue has surged since Australia’s 2006 decision to strip AWB of its export monopoly after an inquiry found it 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.

With GrainCorp owning the silos where farmers dump their harvests, railroad cars that carry loads to east-coast ports, and the elevators used to load ships, the deregulation gave the company a “virtual, natural monopoly” on the eastern seaboard, according to Justin Crosby, a policy director at the Sydney-based NSW Farmers’ Association, which represents 10,000 members, half of them grain growers.

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.

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