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Archer Daniels Midland Company (ADM - Analyst Report) recently announced additional commitments to overcome political and farm group oppositions related to its proposed acquisition of Australia’s largest grain handler, GrainCorp Ltd.
Some politicians and farmers have been voicing their concern over the country’s food security owing to the sale of GrainCorp to a foreign firm. Furthermore, some of the opponents believe that the country will lose profits to overseas companies, given the booming food demand in Asia.
At present, the matter is being reviewed by Australia's Foreign Investment Review Board, which will announce its final decision on Dec 17. This regulatory body will either fully approve of the takeover or impose conditions or reject the deal outright.
In view of these hurdles in the GrainCorp acquisition, Archer Daniels has tried to sweeten its offer with additional commitments. The recent commitments include an additional $200 investment towards supporting Australian agricultural infrastructure primarily in rail enhancement projects, caps on prices of grain handling charges at silos and ports for three years, access to grain infrastructure for growers and third parties, open access to port services and an advisory board for growers and community. The new assurance is above the company’s prior investment commitment of $250 million made in November last year.
Archer Daniels’ interest in acquiring GrainCorp is consistent with its ongoing portfolio management initiative. The company’s strategy focuses on expanding its Agricultural Services and Oilseeds businesses across the globe by investing in key supply areas beyond national borders.
Apart from increasing the company’s global footprint, the aforementioned takeover will expectedly help Archer Daniels to consolidate its financial position.
Moreover, Archer Daniel’s acquisition of GrainCorp will likely facilitate the former to broaden its scope by channeling Australia’s farm produce to meet the growing demand for crops and food in the global market, especially in Asia and the Middle East.
Currently, Australia’s agricultural business has ample opportunity for agri-based companies that are seeking to expand. Australia is a major exporter of many commodities, ranging from minerals such as iron ore to agricultural goods like wheat.
After gaining The United States Federal Trade Commission’s approval in Nov 2012, Archer Daniels had sealed the deal in late Apr 2013. Since then, the company has been seeking fair trade clearance from the government agencies of different countries.
Archer Daniels, which competes with Bunge Ltd. (BG - Snapshot Report), has agreed to pay A$12.20 per share for all outstanding shares of GrainCorp which totals approximately A$3.4 billion. The American agribusiness giant already holds 19.8% stake in the Australian agri-products dealer, acquired for an average of A$11.24 per share.
Archer Daniels had made an initial bid of A$11.75 per share in Oct 2012 and later raised it by 3.8% to A$12.20 per share in Dec 2012. At the time of the initial offering in October, Archer Daniels had about 14.9% interest in the Australian farm products dealer.
At present, Archer Daniels has the acquisition sanction from regulatory agencies in the U.S., Australia, South Africa, Canada, Japan and South Korea, along with the European Commission. Moreover, the company is in negotiation with the government agencies of China and Foreign Investment Review Board of Australia for the final clearance.
Archer Daniels procures, transports, stores, processes and merchandises agricultural commodities and products in the United States and abroad. The company has three major business segments: Oilseeds Processing, Corn Processing, and Agricultural Services.
Other Stocks to Consider
Archer Daniels currently carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the agri-business sector include The Andersons, Inc. (ANDE - Analyst Report) and Cosan Ltd. . While Andersons holds a Zacks Rank #1 (Strong Buy), Cosan carries a Zacks Rank #2 (Buy).