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Archer Daniels Midland Company’s (ADM - Analyst Report) efforts seems to have been in vain as the Australian government ruled out the company’s takeover bid for GrainCorp Ltd., the country’s largest grain handler on grounds of national interest. As the deal was much awaited, the market is apprehended to react negatively to this news once it opens today and we may see a significant fall in Archer Daniels’ share price.
The rejection signifies the newly elected government’s conservative approach towards opening doors to foreign companies. The recent decision followed strong opposition from certain politicians and farmers who expressed concern regarding the country’s food security owing to the sale of GrainCorp to a foreign firm. Furthermore, those opposing the acquisition believe that the country will lose profits to overseas companies, given the booming food demand in Asia.
Australian treasurer, Joe Hockey stated that the time is not appropriate to allow a foreign company to acquire 100% stake in the key agricultural business. However, he announced that Archer Daniels may increase its shareholding in GrainCorp to 25% from the current holding of 19.8%.
The rejection comes as a major setback to Archer Daniels’ strategy of expanding its Agricultural Services and Oilseeds businesses globally by investing in key supply areas beyond national borders.
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.
Being the largest grain handler in Australia, GrainCorp handles approximately one-third of the country's wheat production. Moreover, the company owns 7 out of 10 grain port terminals in the country’s eastern region and accounts for 85% of the exports in the region.
Therefore, Archer Daniel’s acquisition of GrainCorp would have facilitated the former to broaden its scope by channeling Australia’s farm produce to meet the rising demand for crops and food in the global market, especially Asia and the Middle East.
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.
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).