BREAKFAST DEALS: GrainCorp appraisal

GrainCorp’s independent expert is professionally compelled to briefly entertain the possibility of a rival offer to ADM’s bid emerging. But it probably ain’t gonna happen. Meanwhile, iSelect’s float has flopped in a big bad way, which has many wondering what the peripheral damage is to the IPO industry. Elsewhere, there are happier times for fellow online player Carsales.com, Commonwealth Bank is getting more property attention and Rio Tinto can’t flog a diamond.

GrainCorp, Archer Daniels Midland

GrainCorp shares could be worth more than the $13.20 that Archer Daniels Midland has offered and a rival bidder could emerge with the will to pay for it.

That’s the opinion of the independent expert Grant Samuel, commissioned to give its assessment on the offer. The firm concluded that GrainCorp could be worth as much as $13.97 a share, though it recommended that shareholders accept the ADM offer.

“It is conceivable that a third party could make a higher offer for GrainCorp.

"GrainCorp has a number of important strategic attractions for international grain companies, including its unreplicable asset base and ownership of seven out of the eight major grain export terminals in eastern Australia; there is no structural or absolute impediment to an alternative acquirer,” Grant Samuel said in its report.

“While there is a ‘no-shop’ agreement, GrainCorp can respond to unsolicited proposals from other parties.”

Grant Samuel acknowledged that ADM’s 19.9 per cent stake in GrainCorp would be a demotivating factor for potential rival offers, but “it would not stop a determined bidder” launching a counter offer.

With ADM in such a formidable position, one would imagine that a bidder that was that determined to oust the American giant would have to pay it more than $13.97 a share for the company. Indeed, perhaps they’d just propose something in the knowledge that there was very little chance of ADM letting this one slip.

While it’s perfectly prudent of Grant Samuel to maintain that there’s a possibility of a rival bidder emerging, as the independent expert itself emphasises, it’s hugely unlikely.

GrainCorp hit the phones when ADM was circling late last year and, despite its important strategic status as an agribusiness exporter and infrastructure owner geared towards Asia, no one really answered.

Meanwhile, ADM has pledged in its bidder’s statement that it will maintain an open access regime for grain storage assets, along with port and rail services. In actual fact, it was part pledge and part ‘Why would we do it any other way?’

“ADM has the same incentives as other users of GrainCorp’s country grain storage facilities to maximise the throughput of the facilities in order to deliver efficient, low-cost services and maintain international competitiveness,” the company said.

“These objectives will be achieved if the storage capacity remains open to third-party grain growers, traders and marketers and GrainCorp’s pricing remains competitive.

“It is therefore in ADM’s interest to ensure that GrainCorp’s origination networks and up-country storage facilities are efficiently utilised by providing access to all growers of grain at a competitive price.”

ADM has done its darndest to assure growers, many of whom have lobbied The Nationals to make this deal as difficult as possible, that they won’t be worse off in terms of access pricing than under GrainCorp.

The fear has been that a big scary American company would be more likely to screw over Australian farmers than a local company. As with the question of open access, ADM would have no more or less incentive to do that than GrainCorp.

iSelect

The optimist would say with the help of a kind of playground logic that the Australian IPO sector is back to square one after the iSelect float and the Virtus Health float. One good, one bad – they cancel each other out.

The iSelect IPO didn’t go well, to say the least. The online mortgage comparison website finished its debut session 15.7 per cent down from its $1.85 issue price. Even the optimist in the playground would have to admit 15.7 down more than cancels out Virtus Health’s 9 per cent jump on debut.

At midday two big parcels of shares worth a combined $18.6 million changed hands at the issue price. This points to an existing shareholder taking the $1.85 a share and running before the stock has a chance to slip. It’s even worse than Myer’s float back in late 2009 that left retail investors with a sour taste in their mouth for literally years.

As yet, it’s unclear who the sellers were. That set the tone for the rest of the day.

Whether the iSelect float has wounded the broader IPO industry is difficult to tell from here.

Yes, it’s a horrible debut, but drawing comparisons with the aftermath of the Myer float would be a mistake. Myer is bigger and more widely recognised.

But it’s not a good day for the IPO industry. No siree!

Carsales.com, WebMotors SA

In happier news from Australia’s online players, automotive advertising company Carsales.com has agreed to purchase a 30 per cent stake in a leading Brazilian industry cousin called WebMotors SA for $88 million.

The deal was announced in April, but this announcement is for a final, unconditional and binding agreement. Existing owner Banco Santander will maintain a 70 per cent stake in the business.

Carsales.com will fund the deal through existing cash reserves and a new debt facility.

Commonwealth Bank of Australia

With Commonwealth Bank of Australia reportedly looking to offload its commercial property platform, attention is now shifting to its listed vehicle Commonwealth Property Office Fund.

Reports are pointing to GPT Group and Dexus Property Group as parties likely to be interested in the business – particularly the former, which just recently gave up an almost $3 billion tilt for the commercial arm of Australand.

The Australian Financial Review reports that CBA is trying to sell its real estate holdings that are supervised by Colonial First State Global Asset Management following a number of unsolicited bids.

Giving in to the property buyers only entices them more. Commonwealth Property Office Fund would be one of the next on the list.

Wrapping up

After 15 months of searching, mining giant Rio Tinto has failed to find a buyer for its diamond business and ruled out the potential for a float.

“After considering a number of alternative strategic ownership options it is clear the best path to generate maximum value for our shareholders is to retain these businesses,” said Alan Davies, chief executive of Rio Tinto’s diamonds and minerals division.

Here’s hoping they have better luck with Pacific Aluminium. It’ll be a tough ask.

Meanwhile, iron ore miner Fortescue Metals Group has given a $1.3 billion mining services contract to Leighton Holdings for its Kings iron ore project in the Pilbara.

Kings was the project that was temporarily threatened during last year’s iron ore price plunge. Leighton will be thanking its lucky stars that Fortescue managed to get a better handle on its debt.

Now for the stake sale in its port and rail infrastructure.

Elsewhere, incoming Metcash boss Ian Morrice will conduct a review of the wholesaler’s grocery operations, along with its online offering and relationships with suppliers.

Reviews always have the potential to present opportunities.

And finally, Pacific Equity Partners, as US private equity firm Blum Capital Partners, is getting ready to offload safety and securities provider Xtralis, according to The Australian.