ADM Eyes GainCorp Acquisition

Illinois-based Archer Daniels Midland Company ( ADM - Analyst Report ) is contemplating the acquisition of Australia’s GrainCorp Limited, in sync with its ongoing portfolio management initiative. In pursuit of narrowing down on the acquisition deal, the company has approached the Board of Directors of GainCorp and proposed an all cash acquisition buyout transaction.

Last week, Archer Daniels broadened its economic interest in GainCorp by acquiring an additional 10% interest for A$11.75 per share. The company now holds a 14.9% interest in the Australian farm products dealer.

Archer Daniel’s interest in the deal also coincides with its strategy of expanding its Agricultural Services and Oilseeds businesses across the globe by investing in key supply areas beyond national borders. Apart from making way for the company’s strategy of solidifying its global footprint in the key agricultural regions via acquisitions and joint ventures, the buyout is expected to help the company ease its financial constraints as GrainCorp is a well-managed company.

Moreover, Archer Daniel’s union with GainCorp is expected to position the latter well to broaden its scope, by channeling Australia’s farm produce to meet the growing demand for crops and food in the global markets, particularly in Asia and the Middle East.

Archer Daniels Midland procures, transports, stores, processes, and merchandises agricultural commodities and products in the United States and internationally. The company has three major business segments: Oilseeds Processing, Corn Processing, and Agricultural Services. Currently, Archer Daniels Midland has 30,000 workers around the world and runs around 270 processing plants and provides 420 crop procurement facilities. The company’s prime competitors include Cargill Inc., Bunge Ltd. ( BG - Snapshot Report ) , Tyson Foods Inc. ( TSN - Analyst Report ) and Corn Products International Inc.

We maintain our long-term ‘Underperform’ recommendation on the stock based on the disappointing fourth quarter results of fiscal 2012. However, the company has a Zacks #3 Rank, implying a short-term ‘Hold’ rating.