BREAKFAST DEALS: Archer's low aim

ADM refuses to budge on its GrainCorp proposal, while British Airways hushes rumours of a quarrel with Qantas.

Archer Daniels Midland played the ultimate straight bat to speculation that it might increase its offer for GrainCorp, with boss Patricia Woertz saying the US giant hadn’t spoken to the eastcoast grains handler since the last rejection. Now it’s up to GrainCorp to keep delivering on its promise. Meanwhile, just how annoyed at Qantas Airways is former merger aspirant British Airways? Elsewhere the Future Fund says its Australian Infrastructure Fund bid isn’t a ‘gaming exercise, plus the gold consolidation drive marches on.
 
GrainCorp, Archer Daniels Midland
 
About seven weeks ago, GrainCorp chairman Don Taylor and chief executive Alison Watkins put on a display of unshakable confidence to investors that their stance on the $2.8 billion takeover proposal from US giant Archer Daniels Midland was the correct one.
 
Last night, it was ADM’s turn.
 
The US agricultural commodities giant rose around 3 per cent during the US trading session with the release of its second-quarter results. Some analysts expected ADM would take the opportunity to raise its offer for GrainCorp for the second time.
 
As it turns out, it wasn’t to be.
 
ADM chairman and chief executive Patricia Woertz was crystal clear in just how close (or far) ADM came to offering GrainCorp more during a conference call overnight.
 
"There's been no further conversation with them since their rejection of our last proposal," said Woertz quite simply.
 
The ADM chief also reminded the market of just how much bigger it is than its Australian target, reminding them that its portfolio management had generated $570 million from the sale of non-core assets.
 
"And through a company-wide focus, we unlocked more than $1 billion in working cash.” If you’re looking for a reminder of who’s the bigger fish in this exchange, this is it. ADM has a market cap of $US20 billion.
 
GrainCorp still has the backing of its shareholder register for its decision to reject ADM at $12.20 a share. It’s widely believed that GrainCorp is worth at least $13 a share and it’s almost certainly no coincidence that a story of the board’s apparent willingness to engage with something above that number has found its way into the press.
 
The lingering question was whether ADM was willing to sit on its 19.9 per cent stake in GrainCorp and wait for the share price to fall as cyclical factors take hold, or whether it would try to grab its target now before that falling share price tempts other bidders.
 
It’s clear from last night’s events that, for the moment, ADM is willing to sit and wait.
 
Size matters in these exchanges. Woodside Petroleum would love to have Royal Dutch Shell, which is sitting on a legacy stake of 23 per cent, off its register. But the British giant is too bloody big to be moved at any time other than one of its choosing.
 
For now, GrainCorp has to rely on its strategic significance, which will not change, outweighing the ups and downs of farming, which will.
 
While we’re talking agriculture, frozen food supplier McCain Foods has picked up Kitchens of Sara Lee Australia from Hillshire Brands for $82 million.
 
The purchase includes a factory in Lisarow, New South Wales, as well as the accompanying Sara Lee licence rights.
 
Qantas Airways, British Airways, Emirates
 
There’s a curious fissure that’s opened up between the reporting of Qantas Airway’s relationship with British Airways in regards to its long-standing code-sharing deal and the implications of the Australian carrier’s Emirates alliance.
 
The Australian Financial Review ran a story yesterday indicating that it had learned British Airways "would not reinstate the code-share agreement between the two airlines for connecting flights from Asia to London” when the current agreement ends on March 31.
 
The newspaper said one source indicated that British Airways was "furious” about the way Qantas has rolled out its Emirates deal. Remember, these two airlines were once willing merger partners; hell hath no fury like a woman scorned. Although, mind you, men aren’t that flash either after being dumped.
 
However, The Australian reports that the two airlines have dismissed the report that they’re fighting over the code-sharing deal, adding that a renegotiation of the arrangements was always on the cards once the Emirates alliance had been announced.
 
Are these two stories reconcilable?
 
"Qantas customers will still be able to travel with Qantas from Australia to Singapore, Bangkok or Hong Kong, and then on to London with British Airways, under the Oneworld banner,” a Qantas spokesperson told the paper.
 
Meanwhile, a British Airways spokesman said: "We have always supported Qantas and we will continue to support them as we make this transition in our relationship.”
 
British Airways might be quietly annoyed that Qantas has bagged Emirates and even frustrated by its methods. But if it wants to send passengers from Europe to Australia via Asia, Qantas still offers the best avenue.
 
The British carrier will need to find an alternative partner before it can consider upending the code-sharing deal, which involves not just marketing connecting flights as if they’re your own, but coordinating arrival times to minimise disruption, and maximise incentive, for your own customers.
 
We’d expect this dispute, real or not, to be resolved.
 
Future Fund, Australian Infrastructure Fund
 
Future Fund chief Mark Burgess gave us another insight into the fund’s thinking yesterday, an occurrence that is becoming all the more frequent under chairman David Gonski.
 
Top of the list was the accusation that Fund is ‘gaming’ its $2 billion bid for the airport assets of Australian Infrastructure Fund, which is where prized Australian assets with pre-emptive rights are overvalued and less valued or foreign assets are given lower values to compensate.
 
Burgess dismissed the accusation that the valuations were out of whack, adding for good measure that these valuations will ultimately end up on its own balance sheet. It’s also a reality that the co-investors in these Australian assets will benefit from the Fund buying in at a price above their own expectations, even if they can’t match the price.
 
Burgess also indicated that the Fund would evaluate whether to stop investing in tobacco companies, with a decision set for June.
 
At the moment the Fund has about $240 million on tobacco-related products.
 
Wrapping up
 
Starting with resources, Gryphon Minerals managing director Steve Parsons says the PMI Gold Corp merger with Canada’s Keegan Resources could become a template of sorts for African-focused gold consolidation, where good assets meet good capital.
 
Gryphon made the comments to The Australian on the sidelines of the Mining Indaba conference in South Africa, where he also said that companies like Perseus Mining and Resolute Mining would be on the lookout for purchases, while his own company along with Papillon Resources and Azumah Resources could be targets.
 
Sticking with the precious metal for a moment, ASX-listed Cougar Metals has picked up a 51 per cent interest in a Canadian gold project from Kenora Prospectors & Miners, after executing an option on the asset.
 
Meanwhile, the Shell-PetroChina $20 billion Arrow Energy LNG project has offloaded its northern NSW coal-seam-gas exploration interests to Dart Energy to focus on its Queensland interests.
 
You might remember, Dart was spun off by Shell and PetroChina after the pair purchased Arrow in 2010.
 
Elsewhere, Transfield Services has picked up an estimated $175 million in work on an initial year for facilities management and operational services for the regional processing centre in Nauru with the Department of Immigration and Citizenship.
 
There’s a possible one-year extension for this touchy assignment.

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