GrainCorp Open to Proposals After A$2.7 Billion ADM Rebuff

GrainCorp Says ADM’s A$2.7 Billion Offer Undervalues Company
GrainCorp operates seven of the eight ports from which grain is shipped in bulk from Australia’s east coast and is benefiting from growing demand from Asia. Photographer: Carla Gottgens/Bloomberg

GrainCorp Ltd., the largest grain handler in eastern Australia, said it will consider any new proposals after rebuffing a A$2.7 billion ($2.8 billion) offer from U.S.-based Archer-Daniels-Midland Co.

The board will respond to any proposal that’s in the interests of GrainCorp shareholders, Alison Watkins, chief executive officer of the Sydney-based company, said today on a call with reporters. The bid from ADM, the world’s largest corn processor, undervalued it, GrainCorp said earlier in a statement.

GrainCorp has traded above ADM’s A$11.75 offer since the bid was made last month, signaling investors expect a higher price. Buying the Sydney-based company would give ADM control of seven of the eight bulk grain ports on the east of Australia, the world’s second-largest wheat exporter.

The response to “ADM’s offer indicates the door is not closed on negotiations,” Tom Leske, a sales trader at Churchill Capital in Singapore, said by phone. “There is still a decent probability of a bump to reach an agreed deal.”

GrainCorp, which today reported earnings that missed analyst estimates, closed 0.2 percent higher at A$12.20 in Sydney. The benchmark S&P/ASX 200 Index fell 0.9 percent.

The company is an attractive target located in the “geographic nerve center of demand,” Watkins said today on a call with analysts. On the media call, she said the company isn’t in a “selling ourselves” mode.

Delicate Approach

The GrainCorp statement provides an opportunity for the parties to start negotiations, Jamie Spiteri, head dealer at Shaw Stockbroking Ltd. in Sydney, said by phone. By not rejecting the bid, the board signaled it’s ready to consider talks that may lead to a sale of the company, he said.

Credit Suisse Group AG and Greenhill & Co Inc. are advising GrainCorp while Barclays Plc and Citigroup Inc. are acting for ADM.

“These approaches have to be dealt with delicately because groups can walk away,” Spiteri said. “The only real uplift from here would come from an alternate bid on the table. If there’s no alternate bid on the table, they then have to negotiate relative to this direct approach.”

ADM, which increased its stake in GrainCorp to 14.9 percent before making the offer, said today in a statement that its bid “represented a significant premium to the prevailing GrainCorp share price at the time of our approach. We believe it remains an attractive proposal.”

Revenue Surge

GrainCorp handles about 75 percent of annual production on the east coast of Australia, the company said today. It’s also the last publicly traded wheat merchant of its scale in Australia, with its revenue surging since Australia’s 2006 decision to strip AWB Ltd. of an export monopoly.

In addition to its infrastructure, which includes 21 million metric tons of storage capacity at more than 280 inland grain-handling sites, GrainCorp would give ADM annual production of more than 1 million tons of malt.

GrainCorp today reported net income of A$205 million, missing the average of five analyst estimates of A$215 million.

“Past transactions in the agricultural sector have been at far greater premiums given the irreplaceable nature of the assets,” Belinda Moore, a Brisbane-based analyst with RBS Morgans said in a Nov. 12 note. “Australian agriculture has quality, freight and traceability advantages and is also seen as the food bowl or the gateway to Asia.”

Australia was the world’s largest wheat exporter after the U.S. last season, according to the U.S. Department of Agriculture. The nation shipped 24.5 million tons of wheat in the year through September, the Australian Bureau of Agricultural and Resource Economics and Sciences estimates.

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