Archer Daniels Midland opened a fresh chapter in the consolidation wave
in agricultural trading by unveiling plans to buy GrainCorp, the Australian
grain handler, on which it spent $280m raising its stake.
Archer Daniels Midland said it had approached the GrainCorp board hoping
to negotiate an agreed takeover of the Sydney-based group, in which it had
raised its holding from 4.9% to 14.9%.
As part of the Archer Daniels Midland empire, GrainCorp "would be better
positioned to connect Australia's farmers with growing global demand for crops
and food, particularly in Asia and the Middle East", Patricia Woertz, the ADM
chief executive, said.
A deal would also promote a drive by ADM to boost its agricultural
services and oilseeds operations by investing in "key supply regions" outside
its native US, an expansion campaign which earlier this year took it into the
auction for Canadian grain handler Viterra.
While ADM pulled out of the auction for Viterra on valuation grounds,
leaving Glencore to win the deal, Ms Woertz said that a GrainCorp acquisition "would
meet ADM's key financial hurdles".
GrainCorp said that any proposal from ADM would be reviewed "as well as
other options to maximise value for GrainCorp shareholders".
ADM's move revives a merger wave in the sector which has this year seen Marubeni purchase US-based Gavilon for $5.3bn, besides Viterra's $6.1bn acquisition by Glencore.
It also puts ADM on the long list of foreign groups, including US-based
Cargill, Japan's Sumitomo Corporation and Viterra itself, to seek investment in
Australia, which deregulated grain export sales some four years ago.
GrainCorp itself in 2010 bid for AWB, Australia's former wheat export
monopoly, before being trumped by Canada's Agrium.
Agrium sold AWB's trading assets on to Cargill, keeping the retail
However, GrainCorp has succeeded in a series of takeovers in malt, since entering the market with the 2009 takeover of United Malt Holdings.
more recently, paid $170m for Integro Foods, the edible fats and oils business
of Goodman Fielder, and $300m for peer Gardner Smith to create a substantial
oilseeds processing unit.
The drive has been broadly welcomed by investors, helping GrainCorp
shares hit a four-year highs in August, before waning expecations for
Australia's wheat crop, and with it export volumes, kicked in.
GrainCorp's market value remains above $2bn, and would be $2.8bn at
the price of Aus$11.75 a share that ADM paid on Thursday for its extra 10%
However, with GrainCorp the last listed target of substantial size for
an acquirer - with CBH Group, the Western Australian grain handling giant
co-operatively owned – many investors believe that ADM may face
Macquarie analysts earlier this week flagged US-based Bunge and
Singapore's Wilmar International as potential suitors, with market speculation
on Friday also mentioning Olam International, which is expanding rapidly in
grains handling in Russia.
ADM lost out on the Viterra deal after the price spiralled above levels
it felt comfortable paying.
"We determined that at the valuation level we anticipated to be
competitive, which has been confirmed by the announced deal, the acquisition
would not meet our return objectives," Pat Woertz, the ADM chief executive,
said in March.
ADM shares stood 1.1% lower at $28.74 in late morning deals in New York.