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GrainCorp Rejects Higher A$2.8 Billion ADM Offer as Too Low

GrainCorp Rejects Higher A$2.8 Billion ADM Offer as Too Low
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

GrainCorp Ltd., the largest grain handler in eastern Australia, rejected Archer-Daniels-Midland Co.’s higher A$2.8 billion ($3 billion) bid as too low.

“The increase in the proposed price has not changed the board’s view that ADM’s proposal materially undervalues GrainCorp,” the Sydney-based company said today in a statement. “GrainCorp’s board will be constructive in any dealings in relation to proposals that have the potential to be in the best interests of shareholders.”

ADM raised its bid by 3.8 percent last week as it seeks control of the only major publicly traded grain merchant in Australia. A successful deal would give the world’s largest corn processor control of seven of the eight ports that ship grain in bulk from the east coast of Australia, the second-biggest wheat exporter.

“It was very unlikely that GrainCorp would get won over by such a small sweetener,” Peter Esho, Sydney-based chief market analyst for City Index Ltd., said by phone. “While the momentum is behind the business I think shareholders will be quite pleased to let the board either seek out another interested party or continue to talk up the business.”

GrainCorp dropped 0.7 percent to A$12.30 at the close of trading in Sydney, 10 cents above ADM’s A$12.20 offer. The latest bid is 40 percent higher than GrainCorp’s closing share price on Oct. 18, the day before the initial approach was announced, according to Decatur, Illinois-based ADM.

‘All Options’

The bid offers “more certainty, greater value and immediate realization of potential future value for GrainCorp shareholders than GrainCorp’s stand-alone plan,” Jackie Anderson, an ADM spokeswoman, said in a statement. “We intend to consider all our options with respect to GrainCorp.”

ADM raised its stake in GrainCorp to 19.9 percent with the approval of the Australian Foreign Investment Review Board when it increased the price from A$11.75 last week and said GrainCorp shareholders would still be entitled to the 35 cents share dividend announced last month.

“ADM showed its hand by only slightly bumping up their offer,” said Esho. “The agribusiness space doesn’t always move in in a straight line. There will come a point where GrainCorp earnings growth disappoints the market. ADM might see that as an opportunity to then re-initiate its takeover.”

ADM, which got 52 percent of its sales from the U.S. in its last fiscal year, has been working to increase foreign revenue. 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.

Biggest Deal

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

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 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 Dec. 4.

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. Australia is the world’s second-largest wheat exporter.

“GrainCorp has a unique portfolio of integrated, strategic assets and is confident in its outlook and strategy to continue to deliver shareholder value,” the company said today.

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