AUSTRALIA'S most valuable listed agribusiness, GrainCorp, could fall into foreign hands after US company Archer Daniels Midland snapped up a reported 10 per cent stake at a 33 per cent premium.
GrainCorp, which has a market capitalisation of $2 billion, suspended trade in its shares yesterday, confirming ADM wanted to "engage in discussions . . . concerning a potential transaction".
GrainCorp told the exchange it had received "no formal proposal" but if it did, it would be reviewed by the board, along with "other options to maximise value" for shareholders.
ADM's stake, apparently bought in two block trades brokered by Citi for $268 million at $11.75 a share, falls below the 15 per cent threshold that would require Foreign Investment Review Board approval.
Australia's agribusiness sector has succumbed to a wave of foreign buyouts, including that of ABB Grain in 2009, and AWB Ltd in 2010.
According to the Rural Industries Research and Development Corporation, foreign investors now own half the country's 23 licensed wheat exporters (counting both Viterra, now subject of a takeover by Glencore, and Cargill); half the country's milk production (via Fonterra, Lion, Parmalat); 60 per cent of raw sugar production (via Finasucre, Wilmar, Cofco); and 40 per cent of Australian red meat production (via JBS, Cargill and Nippon Meat Packers).
RBS Morgans agribusiness analyst Belinda Moore said GrainCorp, which handled as much as 60 per cent of eastern Australia's grain crop, was "the last man standing" in the sector and was now in play.
"We always believed that GrainCorp would be taken over at some point, given the strategic nature of its assets," Ms Moore said. "However, corporate activity in the stock has come sooner than expected.
"Given the scale and strategic nature of GrainCorp's assets and the fact that it is the last remaining significant grain company capable of being taken over in Australia, we expect a number of parties could be interested and a bidding war may emerge."
Investors are expected to bid up GrainCorp shares when the trading halt rolls off. Ms Moore said agribusiness takeovers were priced on average at nine times earnings. Applying this multiple to RBS's average season forecast for 2013-14 resulted in a takeover price of $12.12 for GrainCorp.
ADM, which has crop sourcing, transportation, storage and processing assets in 75 countries and is valued at $US18 billion, owns 16 per cent of Singapore palm oil company Wilmar International. Wilmar is already a big investor in Australia's agricultural industries, having acquired the old CSR sugar business, Sucrogen, and 10 per cent of Goodman Fielder.
At the end of August, GrainCorp paid $472 million to create an oils business, acquiring the Gardner Smith Group and Goodman Fielder's Integro oils division. That included a $159 million capital raising at $8.80 a share.
Goldman Sachs analysts, tipping a "kick" in mergers and acquisitions, said a GrainCorp takeover would give ADM a key foothold in Australia, the world's second-largest wheat exporter.
Global food prices are surging, partly due to drought and crop failures in the US, South America and Russia.
Rabobank analysts predict world food prices will reach a record high in the first quarter of next year.
Frequently Asked Questions about this Article…
What did Archer Daniels Midland (ADM) do in relation to GrainCorp and why does it matter for investors?
ADM reportedly bought a roughly 10% stake in GrainCorp in two block trades worth about $268 million at $11.75 a share (a reported 33% premium). GrainCorp suspended trading and confirmed ADM wanted to "engage in discussions concerning a potential transaction," which matters because it puts GrainCorp — Australia’s most valuable listed agribusiness — into play for possible corporate activity that could affect the share price.
Does ADM’s stake in GrainCorp require Foreign Investment Review Board (FIRB) approval?
No. The article states ADM’s stake falls below the 15% threshold that would require FIRB approval, so its reported 10% position did not automatically trigger that regulatory approval process.
Could GrainCorp be taken over and what takeover price have analysts suggested?
Analysts in the article say GrainCorp is likely a takeover target due to its strategic assets. RBS Morgans notes agribusiness takeovers average about nine times earnings; applying that multiple to their season forecast produced a potential takeover price of about $12.12 per share.
How large is GrainCorp and what recent acquisitions has the company made?
GrainCorp has a market capitalisation around $2 billion and has handled as much as 60% of eastern Australia’s grain crop. At the end of August it paid $472 million to create an oils business by acquiring the Gardner Smith Group and Goodman Fielder’s Integro oils division, which included a $159 million capital raising at $8.80 a share.
Why would ADM want a stake in GrainCorp — what strategic benefits are cited?
Goldman Sachs analysts said a GrainCorp takeover would give ADM a key foothold in Australia, the world’s second-largest wheat exporter. The article also notes ADM operates crop sourcing, transport, storage and processing assets in 75 countries and owns 16% of Wilmar, underlining ADM’s strategic interest in expanding its Australian presence.
How does this development fit into the broader trend of foreign buyouts in Australian agribusiness?
The article describes a wave of foreign buyouts in the sector — examples include ABB Grain and AWB — and cites Rural Industries Research and Development Corporation data showing foreign investors now own half of the country’s 23 licensed wheat exporters, half of milk production (via companies like Fonterra, Lion, Parmalat), 60% of raw sugar production and 40% of red meat production (via JBS, Cargill and others).
Could rising global food prices influence interest in GrainCorp?
Yes. The article notes global food prices are surging due to drought and crop failures in the US, South America and Russia, and Rabobank predicts world food prices could reach a record high in the first quarter of next year — factors that make strategic grain assets like GrainCorp more attractive to buyers.
What should everyday investors watch for next regarding GrainCorp and the ADM stake?
Investors should watch for the end of the trading halt and any formal proposal from ADM or other bidders, official board announcements about reviews or options to maximise shareholder value, potential bidding activity that could lift the share price, and any regulatory or FIRB-related developments if stakes change materially.
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