Following two unsuccessful attempts, Archer Daniels Midland Co. (ADM - Analyst Report), has finally cracked a deal to acquire Australia’s leading agribusiness, GrainCorp Limited. After much deliberation, the two companies entered a pact wherein GrainCorp has consented to Archer Daniels’ raised takeover bid of A$3.4 billion, including net debt.
Per the latest agreement, Archer Daniels has received permission to conduct due diligence on GrainCorp for seven days, following which the company will decide whether the deal will carry forward or be terminated. The company will announce the results of due diligence along with the first-quarter earnings scheduled to release on May 1. Further, the deal is conditioned upon receiving regulatory approvals or waivers by Dec 31, 2013.
Conditioned upon the positive results from the due diligence, Archer Daniels has proposed to pay A$12.20 per share for all outstanding shares of GrainCorp. Moreover, if the deal proceeds, GrainCorp will pay its shareholders a dividend of A$1.00 per share before the completion of the takeover.
In case the regulatory approvals are delayed beyond Oct 1, 2013, the company will pay its shareholders an additional dividend of A3.5 cents per share from its profits, every month, starting from Oct 1 till the approvals are received or waived off.
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.
Earlier, Archer Daniels had made an initial bid of A$11.75 per share in Oct 2012 and later raised the bid by 3.8% to A$12.20 per share in Dec 2012. At the time of the initial offering made in October, Archer Daniels had about a 14.9% interest in the Australian farm products dealer.
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 Archer Daniels to fortify its financial position.
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 Asia and the Middle East.
Currently, Australia’s agricultural business presents an overwhelming opportunity for agri-based companies, which seek expansion opportunities. Australia is a major exporter of many commodities, from minerals such as iron ore to agricultural goods like wheat.
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.
The company’s prime competitors include Cargill Inc., Bunge Ltd. (BG - Snapshot Report), Tyson Foods Inc. (TSN - Analyst Report) and Ingredion Inc. (INGR - Snapshot Report). The company currently has a Zacks Rank #3.