Bloomberg News

GrainCorp Surge Says ADM’s $2.77 Billion Bid Isn’t Enough

October 22, 2012

GrainCorp Surge Indicates ADM’s A$2.7 Billion Offer Isn’t Enough

Buying GrainCorp, the only major publicly traded grain merchant in Australia left after the nation deregulated its wheat export system, would give 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: Carla Gottgens/Bloomberg

GrainCorp Ltd. (GNC) jumped to a record as investors bet Archer-Daniels-Midland Co. (ADM:US)’s A$2.68 billion ($2.77 billion) cash takeover bid won’t be enough to win control of eastern Australia’s largest grain handler.

GrainCorp climbed 39 percent to A$12.30 in Sydney trading, a record high and 4.7 percent more than Decatur, Illinois-based ADM’s A$11.75-a-share offer. GrainCorp said today it’s reviewing the bid, which is subject to due diligence and other conditions. ADM, the world’s biggest corn processor, said last week it had boosted its stake in the Sydney-based company to 14.9 percent.

“The market is suggesting that A$11.75 is not high enough and that a higher offer is required or that there could be other interested parties,” Belinda Moore, an analyst at RBS Morgans Ltd. in Brisbane, said in a phone interview today. “A bidding war could emerge,” Moore said earlier in an e-mailed note.

Buying GrainCorp, the only major publicly traded grain merchant in Australia left after the nation deregulated its wheat export system, would give 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. Australia is the world’s second-largest wheat exporter.

Companies that may be interested in GrainCorp’s assets include Cargill Inc., Louis Dreyfus Commodities BV, Bunge Ltd., Wilmar International Ltd., Olam International Ltd., Noble Group Ltd., COFCO Hong Kong Ltd., China Foods Ltd. and Bright Foods Group, JPMorgan Chase & Co. analyst Stuart Jackson wrote in an Oct. 19 note.

Normal Premium

Spokesmen for Bright Foods, Olam, Noble Group and China Foods Ltd. declined to comment. Yin Jiaohao, a Beijing-based spokesman for Cofco, didn’t answer calls to his mobile phone numbers. Susan Burns, a spokeswoman for Bunge Ltd., and Mark Klein, a spokesman for Cargill Inc., didn’t return e-mail or phone messages today seeking comment.

Wilmar, in which ADM has a 16 percent stake, didn’t immediately respond to a request for comment.

GrainCorp is valued at A$9.77 a share, implying a takeover price of A$12.70 when including a premium of about 30 percent, RBS Morgan’s Moore said. GrainCorp has three buy, five hold and five sell recommendations from analysts, according to data compiled by Bloomberg.

Glencore International Plc and Hong Kong-based commodity trading company Noble Group are among companies that have targeted agricultural assets, betting on rising demand from Asia as living standards rise and diets improve.

Asian Revenue

Last year, GrainCorp’s revenue from Asia more than doubled from the previous 12 months, making the region the company’s second-biggest sales generator. ADM earned 52 percent of its revenue in the U.S. in fiscal 2012, according to data compiled by Bloomberg.

“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.

Credit Suisse Group AG and Greenhill & Co Inc. (GHL:US) are advising GrainCorp while Barclays Plc and Citigroup Inc. are acting for ADM. The U.S. company last week paid A$269 million for a 10 percent stake. ADM declined 1.7 percent to $28.04 at the close in New York.

“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 a statement. The offer is subject to due diligence, exclusivity and approval by ADM’s board, GrainCorp said.

Storage Capacity

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

The Australian company, 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.

To contact the reporters on this story: Elisabeth Behrmann in Sydney at ebehrmann1@bloomberg.net; Phoebe Sedgman in Melbourne at psedgman2@bloomberg.net

To contact the editors responsible for this story: Andrew Hobbs at ahobbs4@bloomberg.net; Jason Rogers at jrogers73@bloomberg.net


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Companies Mentioned

  • ADM
    (Archer-Daniels-Midland Co)
    • $47.85 USD
    • 0.50
    • 1.04%
  • GHL
    (Greenhill & Co Inc)
    • $44.09 USD
    • -0.06
    • -0.14%
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