ADM should lift Graincorp bid

The currency depreciation in recent months means ADM is getting Graincorp on the cheap.

Much as Archer Daniels Midland boss Ian Pinner is loathe to do so, the American grain trader would be well advised to raise the offer for Graincorp or at the very least sweeten it with a special dividend.

There's no doubt ADM can afford it. When the Illinois based ADM sealed the deal back in April, the Australian dollar was trading north of $US1.03. Before Pinner arrived in Australia this week, the local currency had slipped below US90c.

Effectively, at that rate, ADM would be picking up Graincorp for a 15% discount to the negotiated price.

Rather than the agreed $US3.09 billion struck in April, ADM last week was looking at a total bill of just $2.67 billion, an enormous discount to what the Americans already perceived as good value.

Even with the Aussie dollar's recent rise to US93c, the Americans are still way in front. And that partly explains Pinner's anxious demeanor and his determination to get the deal across the line.

While the Foreign Investment Review board would be unlikely to reject a takeover from an American listed corporation, the soon to be installed Treasurer Joe Hockey ultimately has the power either to accept or reject advice from the FIRB (see Tom Elliott's 10 stocks in the takeover spotlight).

While a rejection would be hugely controversial and potentially damage trade relations with the US, the new Treasurer is facing an internal revolt from sections of the National Party, who have voiced concerns about capital investment in the grain handling and transport infrastructure and fears the American firm will favour American growers.

That's created enormous uncertainty over the deal which has been reflected in Graincorp's share price. Despite the $13.20 offer, Graincorp shares this morning were trading at $12.45, an enormous discount on an agreed takeover that carries full board endorsement.

So far, the delays in regulatory approval have worked in ADM's favour. But the prospect of a hostile reception from the new government should prompt the Americans to consider some kind of added incentive to push the deal across the line.

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