ADM Fails to Impress GrainCorp

Australia’s leading agribusiness, GrainCorp Limited, has turned down Illinois-based food processor, Archer Daniels Midland Company’s ( ADM - Analyst Report ) raised acquisition bid, stating that the offer still undervalues the former.

Archer Daniels had upped its cash offer for GrainCorp by 3.8% to A$12.20 per share on Dec 3, from the initial bid of A$11.75 per share proposed on Oct 19. Additionally, the new bid represented a premium of about 40% to GrainCorp’s closing price at the time the initial offer was made. The revised bid maintained the clause of paying GrainCorp’s latest dividend of A$0.35 per share that was declared on Nov 15. This brings the total revised offer price to about A$12.55 per share or A$2.9 billion.

Archer Daniels’ interest in acquiring GrainCorp is in sync with its ongoing portfolio management initiative. Archer Daniels’ strategy focuses on 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 GrainCorp 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.

Currently, Australia’s agricultural business presents an overwhelming opportunity for agri-based companies seeking expansion opportunities. Australia is a major exporter of many commodities, from minerals such as iron ore to agricultural goods like wheat.

As on Dec 3, Archer Daniels had an economic interest of about 19.9% in GrainCorp shares, which has been approved by the Australian Foreign Investment Review Board. At the time of the initial offering made in October, the company had about 14.9% interest in the Australian farm products dealer.

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 ‘Neutral’ recommendation on the stock. The company also maintains a Zacks #3 Rank, implying a short-term ‘Hold’ rating.