Archer-Daniels-Midland Co., the biggest corn processor, offered A$2.7 billion ($2.8 billion) in cash for GrainCorp Ltd. to gain agricultural shipment assets in Australia, sending the target to a record high.
ADM made a non-binding A$11.75 a share bid, Sydney-based GrainCorp said today in a statement, 33 percent more than its close before the Decatur, Illinois-based company revealed last week it held a 14.9 percent stake. GrainCorp rose as much as 43 percent to A$12.69, indicating expectations of rival bids.
“The offer price isn’t high enough,” Belinda Moore, an analyst at RBS Morgans Ltd. in Brisbane, said today in an e-mailed note. “GrainCorp is now clearly in play and a bidding war could emerge. We wouldn’t rule out another party bidding for the company given the scale and strategic nature of its assets.”
Buying GrainCorp, the only major publicly traded grain merchant in Australia left after the nation deregulated its wheat export system, would help ADM boost sales in Asia, the second-biggest region for GrainCorp’s products and services. Australia is the world’s second largest wheat exporter.
Moore values GrainCorp at A$9.77 a share, implying a takeover price of A$12.70 per share when including a takeover premium of about 30 percent, she said. GrainCorp has three buy, six hold and five sell recommendations, with a mean 12-month price target of A$9.33, according to data compiled by Bloomberg.
Glencore International Plc and Hong Kong-based commodity trading company Noble Group Ltd. are among groups that have targeted agricultural assets recently, betting on rising demand from Asia as living standards rise and diets improve.
Companies that may be interested in GrainCorp’s assets include Cargill Inc., Louis Dreyfus Commodities BV, Gavilon LLC, Bunge Ltd., Wilmar International Ltd., Olam International Ltd., Noble, COFCO Hong Kong Ltd., China Foods Ltd. and Bright Foods Group, JPMorgan Chase & Co analyst Stuart Jackson wrote in an Oct. 19 note.
“The GrainCorp board is reviewing the proposal and has not yet formed a view on its merits and will keep the market informed of any material developments,” the company said in the statement. The offer is subject to due diligence, exclusivity and approval by ADM’s board, GrainCorp said.
Credit Suisse Group AG and Greenhill & Co Inc. are advising GrainCorp while Citigroup Inc. is acting for ADM. Decatur, Illinois-based ADM last week paid A$269 million for a 10 percent stake in eastern Australia’s largest grain handler to raise its holding to 14.9 percent.
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. It has about 20 million tons of storage at more than 280 inland grain-handling sites, according to the company.
“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.
Last year, GrainCorp’s revenue from Asia more than doubled from the previous 12 months. ADM earned 52 percent of its revenue in the U.S. in fiscal 2012, according to data compiled by Bloomberg.
ADM declined 1.9 percent to $28.52 at the Oct. 19 close in New York. GrainCorp traded at A$12.41 at 11:15 a.m. in Sydney.
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 Ltd. of its wheat 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.