ADM Raises Offer for GrainCorp to $2.9 Billion

ADM Raises Offer for Australia’s GrainCorp to $2.9 Billion
Buying GrainCorp, the only major publicly traded grain merchant in Australia left after the nation deregulated its wheat-export system, would give ADM control of seven of the eight ports that ship grain in bulk from the nation’s East Coast as well as a substantial malt producer. Photographer: Eddie Seal/Bloomberg

Archer-Daniels-Midland Co., the world’s largest corn processor, raised its bid for GrainCorp Ltd. by 3.8 percent to A$2.8 billion ($2.9 billion) after the Australian grain handler said an earlier offer was too low.

ADM proposes paying A$12.20 a share in cash, compared with A$11.75 previously, and allowing GrainCorp investors to keep the 35 cent dividend announced Nov. 15, Decatur, Illinois-based ADM said yesterday in a statement. ADM said it raised its stake in GrainCorp to 19.9 percent with the approval of the Australian Foreign Investment Review Board.

“ADM is getting much closer to a point where GrainCorp will feel obliged to engage,” James Ferrier, a Melbourne-based senior research analyst with Wilson HTM Investment Group, said by phone. “I don’t think they’re yet at a point where the GrainCorp board are going to accept that price.”

Buying GrainCorp, the only major publicly traded grain merchant in Australia left after the nation deregulated its wheat-export system, would give ADM control of seven of the eight ports that ship grain in bulk from the nation’s east coast as well as a malt producer. Australia is the world’s second-largest wheat exporter.

GrainCorp gained 3.2 percent to A$12.32 at the close in Sydney, the most since Oct. 22, when ADM made its bid. ADM rose 0.3 percent to $26.79 in New York yesterday.

No Pressure

The bid is subject to GrainCorp granting ADM access to its books and recommending the proposal to shareholders, ADM said.

The improved offer isn’t high enough for GainCorp’s board to allow ADM to study the company’s finances, Tom Leske, a sales trader at Churchill Capital Pte in Singapore, said in an e-mail.

“Given their results, GrainCorp would be under little pressure from their shareholders to allow ADM data room access,” he said. “I think the market is convinced A$13 is the starting price. ADM are trying to hose down this expectation but I doubt they will be able to change the market and the board opinion.”

GrainCorp reported a record profit of A$205 million for the year ended Sept. 30. It is forecast to earn net income of A$171 million this fiscal year, according to the average of 13 analyst estimates compiled by Bloomberg, which would be its third highest result since 2006.

GrainCorp Response

“The GrainCorp board will review the revised proposal and will advise the market in due course,” the Sydney-based company said today in a statement. “GrainCorp has a unique portfolio of integrated, strategic assets and is confident in its outlook and strategy to continue to deliver shareholder value.”

ADM, which got 52 percent of its sales from the U.S. in fiscal 2012, has been working to increase foreign revenue. Its net income dropped 60 percent in the quarter through September from a year earlier on losses in ethanol and after the worst U.S. drought in five decades reduced grain merchandising and handling volume.

“Access to the emerging markets is attractive,” Jessica Bemer, an analyst at Sewickley, Pennsylvania-based Snow Capital Management LP, which oversees $2 billion including ADM shares, said in a telephone interview.

Biggest Deal

Buying GrainCorp would be ADM’s biggest deal. The largest so far is its $470 million purchase of W.R. Grace & Co.’s cocoa business in 1996, according to data compiled by Bloomberg.

The latest bid is 40 percent higher than GrainCorp’s closing share price on Oct. 18, the day before the initial offer was announced, ADM said.

The revised proposal is still too low, with an offer of between A$13.97 and A$14.33 a share “more in line with recent transactions,” Belinda Moore, a Brisbane-based analyst with RBS Morgans Ltd., said in an e-mailed note yesterday.

GrainCorp said Nov. 15 that ADM’s original proposal undervalued it -- pointing to its global portfolio of grain-processing assets that handle about 75 percent of annual production on Australia’s east coast.

ADM’s bid “offers more certainty, greater value and immediate realization of potential future value for GrainCorp shareholders than GrainCorp’s standalone plan,” ADM Chairman and Chief Executive Officer Patricia Woertz said in yesterday’s statement.

ADM Invests

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

ADM has invested an average of $1.4 billion in capital investments over the past three fiscal years, according to a report yesterday by Standard & Poor’s.

That level of investment, including acquisitions, will continue over several years as the company looks to expand its global grain origination and processing business, said Chris Johnson, a New York-based credit analyst for S&P. ADM’s credit measures “may weaken substantially” if it issues debt to acquire GrainCorp, he said in the report.

Summa Group, Russia’s biggest port operator, is raising money for a foreign grain-trading deal and was considering making an offer for GrainCorp before ADM made its initial bid, two people with knowledge of the matter said in October.


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