Reuters: Regulatory News: UPDATE 2-ADM's $2.8 bln GrainCorp bid seen flushing out more bids

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UPDATE 2-ADM's $2.8 bln GrainCorp bid seen flushing out more bids Oct 22nd 2012, 01:04 Sun Oct 21, 2012 9:04pm EDT * GrainCorp shares surge more than 40 pct to top ADM offer * Bid comes amid global consolidation in grains sector * Cargill, Bright Foods, Bunge, Wilmar, Louis Dreyfus may eye rival bids * Bid undervalues GrainCorp - analysts By Narayanan Somasundaram SYDNEY, Oct 22 (Reuters) - U.S. agriculture giant Archer Daniels Midland has bid $2.8 billion for GrainCorp , sending shares in Australia's last independent grains handler soaring past the offer, as the market bets on a higher price or rival bids being flushed out. ADM's bid comes at a time of consolidation in the global grains sector amid intense competition to feed fast-developing countries seeking food security. Australia is a coveted market with a stable policy regime and access to Asia. After a string of deals GrainCorp is the last available asset, which can give full access to the market of the world's second-biggest wheat exporter. "The market is clearly speculating the offer won't be successful as it is. There is hope for rival offers or a higher price to seal the deal. It is very early days," said Paul Xiradis, chief executive at fund manager Ausbil Dexia, which owns shares in the Australian grains group. GrainCorp shares, which rose as much as much as 43.4 percent in early trade, were trading at A$12.43 at 0021 GMT compared with the A$11.75 a share bid from ADM, which wants the deal to push ahead in the global race for grains trading power. Analysts felt the bid undervalued GrainCorp, based on past deals. With a potentially long list of rival bidders including Cargill, Bright Foods, Bunge, Wilmar and Louis Dreyfus, they expected the board to play hardball. GrainCorp said it was reviewing Monday's offer by ADM, which has a 14.9 percent stake in the firm now. The bid is subject to a number of conditions including exclusivity and due diligence. "Given the strategic value of the GrainCorp assets and this is the last remaining grain company in public ownership, we believe there could be other interested parties such as other grain-related companies or an Asian buyer," Deutsche Bank analyst Mark Wilson said in a research note. JPMorgan said in a note to clients that GrainCorp should be valued at between A$11.88 to A$13.43 a share, based on Viterra's acquisition of ABB Grain in 2009. The bid values GrainCorp at eight times 2012/13 earnings before interest, taxes, depreciation and amortisation, while past deals in the sector paid more than 9.5 times. GLOBAL CONSOLIDATION The bid comes as the four "ABCD" firms that have dominated the global agricultural business for decades -- Archer Daniels, Bunge, Cargill and Louis Dreyfus -- are emerging from a period of dismal earnings amid tough new competitors and volatile markets. The move is not Archer Daniels's first signal that it wants to bulk up and push ahead of less acquisitive rivals like Cargill while seeking to fend off eager new challengers such as Glencore and Singapore's Olam. Nearly seven months ago Archer Daniels pulled out of the race to buy Canadian grain company Viterra, which was eventually bought by No 1 global commodities trader Glencore in a deal worth C$6.2 billion ($6.2 billion then). In May, Japan's Marubeni bought U.S. grain merchant Gavilon, whose owners included billionaire investor George Soros, highlighting the intensifying competition for a foothold in the North American supply chain. Business has been booming in the sector and GrainCorp raised its forecast for 2012 earnings before interest, tax, depreciation and amortisation (EBITDA) to A$385-A$415 million in May after posting stronger-than-expected first-half earnings. Credit Suisse and Greenhill are advising GrainCorp. Link this Share this Digg this Email Reprints

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