Firm Management

GrainCorp Quells ADM’s $2.8 bn Takeover Bid, Expects Higher Valuation

December 1
12:35 PM 2012

Australia's leading grains handler GrainCorp has pushed back a $2.8 billion takeover offer from US agricultural major Archer Daniel Midland Co (ADM) citing that the bid does not reflect the fundamental strength of the grains handler.

GrainCorp has had a highly successful year on the back of a bumper harvest that yielded a record annual net profit for the company. Reports suggest that the grains handler expects a 15-20 percent higher offer from ADM, especially in light of its enhanced earnings.

GrainCorp CEO Alison Watkins said in a recent statement that the company "is ideally positioned to benefit from the growth in global demand for grain and processed grains". She cited that global trade in core grains is expected to double by 2050, which will mean sustained growth and profitability for GrainCorp. The company said in another statement that "the GrainCorp board remains committed to maximising value for shareholders".

ADM's interest in GrainCorp primarily emerges from the large-scale consolidation taking place in the global grains sector, wherein global farm majors are pulling all stops to wrest a large share of the grains market, particularly in the rapidly emerging economies with large population. GrainCorp has strong links with the Asian market which has decidedly deepened ADM's interest in the company. However, ADM has not taken any visible steps to sweeten the offer to GrainCorp, although Paul Xiradis, chief executive at fund manager Ausbil Dexia, which owns shares in GrainCorp, has been quoted saying that ADM could indeed make a higher bid in view of the grain handler's shares commanding a higher premium now.

Reports indicate that a host of other potential bidders have set their eyes on GrainCorp. They include Louis Dreyfuss, Cargill, Bunge, Singapore's Wilmar International, China's Bright Food Group and COFCO, and Russian investment and trading group Summa. But the moot point is whether GrainCorp will be able to sustain its growth momentum.

Alleviating this concern, GrainCorp CEO said that for the coming year GrainCorp Malt has forward sold 1 million tonnes of its 2013 production. Besides, margins at GrainCorp oils are expected to be in line with historical performance and there is growing international demand for canola oil. The company has also announced an updated growth strategy to boost underlying earnings before interest, depreciation and amortization (EBITDA) of around A$110 million by the end of 2016.

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