ADM raises GrainCorp offer to A$2.8bn

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Archer Daniels Midland has sweetened its cash offer for GrainCorp and acquired a further 5 per cent of its shares in a stock market raid as it tries to bring the directors of the Australian wheat trader to the negotiating table.

GrainCorp, Australia’s largest listed agriculture company, rebuffed a A$2.7bn approach from New York-listed ADM last month saying the bid “materially” undervalued its unique portfolio of ports and silos in a country where agricultural exports are poised to double by 2050.

GrainCorp is one of the few midsize international grain merchants left after a consolidation spree this year.

ADM responded on Monday by raising its offer 3.8 per cent to A$12.20 a share in cash. The increased offer, which is subject to a number of conditions including a board recommendation, values GrainCorp’s equity at A$2.8bn ($2.9bn).

Including a dividend of A$0.35 a share announced last month – which under the terms of the revised proposal shareholders are allowed to keep – the new offer is A$0.80 a share more than ADM’s initial proposal. ADM’s acquisition of a further 5 per cent of GrainCorp’s shares at the new offer price took its stake to 19.9 per cent.

Shares in Sydney-based GrainCorp rose 3.2 per cent to A$12.32 on Tuesday as investors bet that ADM would be forced to further increase its offer.

The board of GrainCorp has yet to review the revised offer, people familiar with the situation said on Tuesday, and will not be rushed into a decision. But it is unlikely to recommend the increased bid, the people said.

ADM’s offer is only 3.8 per cent more than its previous proposal of A$11.75 a share, which GrainCorp dismissed as not reflecting the strategic importance of its assets and Australia’s proximity to growing food importers in the Middle East and Asia. Last week, GrainCorp secured regulatory approval for long-term agreements with users of its seven bulk grain ports on Australia’s eastern seaboard.

“We note that the board recently stated that ADM’s offer of A$11.75 materially undervalued the company. We don’t view the increased offer as a material uplift in valuation,” said RBS Morgans analyst Belinda Moore.

ADM has responded to those arguments by drawing attention to Australia’s variable crop sizes. Australia’s wheat exports are forecast to decline 33 per cent in the 2012-13 season, according to the US Department of Agriculture.

“Our proposal also offers more certainty, greater value and immediate realisation of potential future value for GrainCorp shareholders than GrainCorp’s standalone plan,” said Patricia Woertz, ADM’s chief executive.

“ADM is a disciplined buyer, and any combination with GrainCorp must meet our key financial hurdles, taking into consideration the impact of the Australian agricultural cycle on GrainCorp’s earnings power.”

Traders believe GrainCorp is holding out for at least A$13 a share but are not sure ADM is prepared to pay that much. Standard & Poor’s placed ADM on watch for a possible ratings downgrade following its original approach to GrainCorp in October.

However, JPMorgan analyst Stuart Jackson said ADM could bump up its offer by another A$100m-A$200m (A$0.44-A$0.88 a share) without “materially” affecting the attractiveness of the deal or its credit rating “beyond the expected one-notch downgrade from the original offer”.

ADM, US-based Bunge and Cargill, and Louis Dreyfus Commodities of France form the “ABCD” of global grain trading houses that handle a large share of agricultural commodity flows.

ADM targeted GrainCorp as it seeks to diversify assets from its historic base in the US, where a severe drought will this year curb export volumes.

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