GrainCorp finally submits to ADM’s $3.1-bn bid

GrainCorp Ltd, Australia's largest independent grains handler, today finally agreed to be acquired by Archer Daniels Midland Co (ADM), after the US agriculture giant sweetened its offer to A$3 billion ($3.1 billion) plus dividend.

Illinois-based ADM ended its six-month pursuit of GrainCorp after it included dividends totaling A$1 per share over and above its A$12.20 cash offer.

"The potential offer would imply an aggregate transaction value of $A3.4 billion, including GrainCorp's net debt," ADM said in a statement.

GrainCorp said that it has reached conditional agreement with ADM on the takeover, while ADM said that it has signed a takeover bid implementation deed subject to due diligence.

"Subject to the satisfactory completion of this due diligence, ADM has agreed to make a cash offer, which would be unanimously recommended by the GrainCorp board, to acquire the company for $A12.20 per share," ADM said in a statement.

ADM, which had built up its stake in GrainCorp to 19.8 per cent, has been pursuing the Sydney-based company since October 2012 as part of its plan to expand outside the US.

Backed by a bumper harvest that gave it a record A$205 million net profit for 2012, GrainCorp had twice rejected ADM's bids saying that that the offers undervalued the company. (See: GrainCorp rejects Archer Daniels Midland's revised $2.9 bn bid as too low)  

Founded in 1916, Graincorp, originally called Government Grain Elevator, a part of the New South Wales government's department of agriculture, was formed to transport grain from the grain-producing regions of New South through railways.

After being privatised in 1992, Graincrop expanded through strategic acquisitions.

In 2002 GrainCorp entered into a joint venture with US agribusiness giant Cargill to purchase Allied Mills, and acquired United Malt Holdings, the world's fourth-largest commercial malt manufacturer for $757 million in 2009, and German Schill Malz in 2011 for $75.8 million.

GrainCorp has over 280 country elevators in Australia, grain storage capacity of up to 20 million tonnes spread across more than 2,700km from Queensland to Victoria, and operates seven bulk grain export elevators, serviced by 20 contracted trains with the capability of hauling up to 4 million tonnes of grain annually.

It handles as much as 60 per cent of eastern Australia's wheat, barley, canola, chickpea and sorghum crops.

GrainCorp Marketing buys and sells more than 4.5 million tonnes of wheat, barley, sorghum and canola per year, while GrainCorp Malt is one of the world's largest commercial malt producers, producing over 1 million tonnes of specialty malts annually for the world's leading brewers and distillers.

Founded in 1902 by George Archer and John Daniels, ADM is one of the world's largest agricultural processors with more than 270 processing plants, 420 crop procurement facilities and a large crop transportation network.

It main competitors are Cargill, Bunge and Louis Dreyfus.

With annual sales of $89 billion and market capitalisation of nearly $22 billion, ADM is 10 times the size of GrainCorp by value.

Analysts had earlier said that there could be rival bidders like Cargill, Bright Foods, Bunge, Wilmar and Louis Dreyfus due to the strategic nature of Graincorp's assets, but with ADM acquiring 19.8-per cent of GrainCorp, a competing offer is now unlikely.

The agriculture sector has seen two large acquisitions last year. Commodities giant Glencore International struck a $6.2-billion cash deal to acquire Canada's largest grain handling company Viterra Inc, and Japan's Marubeni agreed to buy US grain merchant Gavilon, for $3.6 billion.

The Marubeni-Gavilon deal was finally approved this week by Chinese regulators, though with stiff conditions. (See: Chinese regulators approve Marubeni-Gavilon merger with stiff conditions)

Buying GrainCorp would be ADM's biggest deal after it acquired W.R. Grace & Co.'s cocoa business in 1996 for $470 million, according to data compiled by Bloomberg.

"GrainCorp is a leader in the Australian agribusiness sector. Should the offer proceed, the addition of GrainCorp to our global network would fit our strategy and help to further connect Australia's growers with growing global demand for crops and food, particularly in Asia and the Middle East," said Patricia Woertz, ADM chairman and CEO.

GrainCorp chairman Don Taylor said that the company believed the offer highlighted the strategic value of the business and its assets as well as its "enviable proximity" to the fast growing Asian markets.

"GrainCorp will work with ADM to ensure that ADM's confirmatory due diligence requirements can be satisfied, following which a takeover offer would be made on the terms agreed," Taylor said.

The deal is subject to regulatory approvals from Australia's Foreign Investment Review Board and China's Ministry of Commerce.