* ADM buys 10 percent stake valuing GrainCorp at $2.8 bln
* ADM stake now stands at 14.9 percent
* Grain prices have boomed this year
* Deal could give ADM stronger platform to supply Asia
* Wilmar and Bunge also seen as potential buyers.
By Jane Wardell
SYDNEY, Oct 19 (Reuters) – Archer Daniels Midland
bought a 10 percent stake in GrainCorp on Friday,
valuing the Australian grains handler at $2.8 billion, and is
seeking talks on a takeover that would give the U.S.
agribusiness a stronger platform to supply Asia.
The purchase, which boosted ADM’s stake in GrainCorp to 14.9
percent, comes at a time of dramatic global consolidation in the
agricultural sector amid intense competition to feed
fast-developing countries seeking food security like China.
“GrainCorp is a well-managed company, and together with ADM
would be better positioned to connect Australia’s farmers with
growing global demand for crops and food, particularly in Asia
and the Middle East,” ADM Chief Executive Patricia Woertz said.
A drought this year has hurt grains supplies from the United
States and increased global supply anxiety as rising demand for
soy and corn from China helps push up grains prices.
ADM’s move also comes after a wave of industry consolidation
and could attract rival interest from other major players, also
seeking a bigger role in the global agricultural supply chain
beyond the United States and Canada.
GrainCorp said on Friday that ADM had sought talks on a
“potential transaction” but had not made a formal proposal.
“Australia has an opportunity to be a good source as a food
basket for Asia as Asia’s appetite for quality produce
increases,” said Akshay Chopra, portfolio manager at Karara
Capital in Melbourne.
Australia, the world’s second-largest wheat exporter,
supplies Asia’s top buyers, Indonesia, Japan and South Korea.
China has been buying up Canadian spring wheat over the past
two weeks, and traders said the country was in need of large
quantities of high-protein wheat.
GrainCorp handles as much as 60 percent of eastern
Australia’s grain crop and has about 20 million metric tons of
storage at more than 280 inland grain handling sites, according
to the company.
ADM bought 22.8 million shares worth A$268 million ($278
million), or 10 percent of GrainCorp, before the market opened
on Friday at A$11.75 a share, a 33 percent premium to the share
price close on Thursday.
The Australian firm requested a share trading halt until
next Tuesday and said the board will look at the proposal as
well as other options to maximise value for shareholders
ABCD COMPANIES
ADM already has a presence in Australia through grain
handler Toepfer International and a manager with an
international trading company said there could be concerns over
the U.S. firm strengthening its position further in Australia.
“It will be interesting to see how this works as ADM owns a
sizable chunk in Toepfer which has big presence in Australia,”
said the manager, who requested anonymity as he was not
authorised to speak to the media.
ADM owns 80 percent of Toepfer, which purchases grains and
pulses from Australian farmers and delivers to both domestic and
international customers.
Charlie Sernatinger, senior vice president at ABN AMRO in
Chicago, said ADM’s move “comes as a surprise because GrainCorp
is largely in the grain elevator business while ADM is in
processing.”
ADM, the largest corn processor in the United States and a
major producer of ethanol, is one of the “ABCDs”, the four big
agricultural players in the United States rounded out by Bunge
, Cargill and Louis Dreyfus.
The quartet have dominated the global agricultural business
but their earnings have been hit by the drought in the United
States that has savaged crops.
Russia has also been hit by a drought in recent months,
leading to speculation that Moscow could limit exports and
driving up prices at the Chicago Board of Trade.
REGULATORY RISK
Macquarie analysts said in a note published before ADM’s
share purchase that Wilmar International and Bunge
could also be potential buyers for GrainCorp.
ADM holds a 16 percent stake in Wilmar.
Growing international interest in Australia’s agricultural
businesses has also led to a backlash in some quarters. The
government’s recent approval of Chinese textile group Shandong
Ruyi’s purchase of Cubbie Station, a giant cotton farm in
Queensland was criticised by opposition lawmakers.
An investigation by Australia’s Foreign Investment Review
Board will be triggered if ADM lifts its stake in GrainCorp to
15 percent or more.
FIRB in July gave the green light to the C$6.1 billion
($6.21 billion) takeover by Glencore International Plc,
one of the world’s largest commodities suppliers, of Canadian
grain handler Viterra Inc.
Viterra holds nearly all the grain storage capacity in South
Australia after buying Australia’s ABB Grain in 2009.
Canadian fertiliser maker and farm products retailer Agrium
Inc bought AWB Ltd, Australia’s top bulk wheat
exporter, in 2010 for A$1.2 billion.
Business has been booming in the sector and GrainCorp raised
its 2012 earnings before interest, tax, depreciation and
amortisation (EBITDA) forecast to A$385-A$415 million in May
after posting stronger-than-expected first-half earnings.
