ADM Wins GrainCorp Board Approval for $2.3 Billion Offer

Archer-Daniels-Midland Co., the world’s largest corn processor, won agreement to acquire GrainCorp Ltd. for A$2.2 billion ($2.3 billion) after raising its offer with a special dividend for shareholders of the Australian crop handler.

ADM will pay A$12.20 a share for the stock it doesn’t already own, subject to an examination of Graincorp’s finances to be completed next week, Decatur, Illinois-based ADM said yesterday in a statement. Investors in Sydney-based GrainCorp will also receive a A$1-a-share special dividend prior to the completion of the deal.

Buying GrainCorp, the only major publicly traded grain merchant left in Australia after the country 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. ADM made an initial bid last year, building its stake to 19.9 percent.

“The board signed this agreement, they’re allowing due diligence and are happy with the offer and I think shareholders should be too,” John Maysles, an event-driven senior analyst at Elevation LLC in Los Angeles, said by phone. “It’s pretty much the equivalent of raising the bid by a dollar by allowing them to pay that dividend.”

GrainCorp jumped 7.9 percent A$12.81, the highest since it started trading in 1998 in Sydney. ADM gained 1.9 percent to $33.80 at 10:06 a.m. in New York.

Asia Demand

“ADM and GrainCorp have complementary geographies with little overlap and highly compatible cultures,” ADM Chairman and Chief Executive Officer Patricia Woertz said in the statement. “The addition of GrainCorp to our global network would fit our strategy and help to further connect Australia’s growers with growing global demand for crops and food, particularly in Asia and the Middle East.”

Sales at GrainCorp, which has benefited from growing demand from Asia, have jumped since Australia’s 2006 decision to strip AWB Ltd. of its wheat export monopoly. ADM’s proposal underscores a push by companies including Glencore International Plc and Hong Kong-based commodity trader Noble Group Ltd. to target agricultural assets, betting on rising demand from Asia as living standards and diets improve.

“Today’s decision isn’t a decision the board has taken lightly and in fact it’s taken us some time to reach this point,” Don Taylor, GrainCorp’s chairman, said today on a call with reporters. ADM’s offer “highlights the strategic value of our business.”

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 offer carries a 50.1 percent minimum acceptance condition, and needs to be cleared by Australia’s Foreign Investment Review Board as well as China’s Ministry of Commerce of the Government, known as MOFCOM. Glencore’s C$6.1 billion ($6 billion) acquisition of Canada’s Viterra Inc., completed in December, was delayed as it awaited MOFCOM clearance.

“We don’t have any particular anticipation that any of them will be difficult,” GrainCorp CEO Alison Watkins said on the media call. “The MOFCOM approval is uncertain in its timeframe and we would see it as probably the longest timeframe of the approvals that we require to achieve.”

Under the terms of the proposal, GrainCorp can’t solicit alternative proposals and needs to give ADM two days to match a superior proposal.

‘Concrete Proposal’

“We have had contact with other parties directly and through our advisers,” Watkins said. “At this stage we have this concrete proposal from ADM, which we believe represents very good value for our shareholders.”

With tax credits, Australian shareholders of GrainCorp stand to receive about A$14.13 a share if the deal proceeds, Belinda Moore, a Brisbane-based analyst with RBS Morgans Ltd., said in an e-mailed note. That equates to a payment of 10.3 times earnings before interest, tax and depreciation for fiscal 2014, and compares with an average acquisition multiple for Australian and offshore agribusinesses of 9.5 to 9.7 times forward earnings, Moore said.

ADM, which got 52 percent of its sales from the U.S. in its last fiscal year, has been working to increase foreign revenue. The company made its initial approach in October, and raised its bid by 3.8 percent to A$12.20 a share in December, before announcing another sweetener yesterday.

‘Reasonable Offer’

“They’re trying to do the best they can by existing shareholders and say that ‘this is probably a reasonable offer,’” said Paul Jensz, a Melbourne-based analyst at PhillipCapital Ltd. “The market would be a bit surprised, but they’ve had a bit more time to think about it and apparently no other party has put in anything formal.”

There were $85 billion of takeovers in 2012 involving companies in Australia, the biggest exporter of iron ore, coal and alumina, and the second-biggest shipper of wheat last year. That compares with $144.5 billion of deals in 2011.

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 capacity at more than 280 inland grain-handling sites, according to the company.

Australia stripped AWB of its wheat export monopoly in 2006 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.

Profit Outlook

GrainCorp’s profit will fall 15 percent to A$174 million in the year to Sept. 30, according to the average of nine analysts’ estimates compiled by Bloomberg.

With GrainCorp owning the silos where farmers store 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.

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

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