GrainCorp says sweetened bid still not enough
In response, ADM left open the prospect of selling down or out of its near 20 per cent stake in the Sydney-based grain handler.
Shares in GrainCorp closed 0.65 per cent lower at $12.30 on Thursday, but remain 63 per cent higher this year after soaring on news of ADM's original offer.
GrainCorp told shareholders that while it would be "constructive in any dealings in relation to proposals that have the potential to be in the best interests of shareholders", ADM's improved offer had "not changed the board's view that ADM's proposal materially undervalues GrainCorp".
ADM's offer is $12.20 a share, 45¢ higher than its first offer of $11.75 a share made in October.
This is well short of the $13 a share believed to be sought by GrainCorp, although there are questions about whether conditions underpinning GrainCorp's recent record earnings will continue in 2013.
Brisbane-based RBS Morgans analyst Belinda Moore said the board's rejection was not a surprise and ADM would likely need to "increase its bid materially to get board support".
Ms Moore reiterated that the bid was priced below the average acquisition multiple for agribusinesses, of 9.5-9.7 times forecast earnings, equating to $13.97 and $14.33 a share. Other analysts, such as Moelis & Co's John Garret, tipped ADM would go hostile.
ADM defended the $2.8 billion price tag - the same as GrainCorp's market capitalisation - and said it intended to consider its options "with respect to GrainCorp and our 19.9 per cent shareholding".
"The revised proposed represented a substantial premium to the prevailing GrainCorp share price at the time of our first approach," it said on Thursday.
The Australian Bureau of Agricultural and Resource Economics and Sciences recently lowered its 2012-13 crop estimate by 2.2 per cent to 22 million tonnes due to dry weather - well down on last year's record 29.9 million tonnes.
The downgrade will put more upwards pressure on grain prices after US crop failures.
Frequently Asked Questions about this Article…
ADM submitted a sweetened takeover offer valued at about $2.8 billion, proposing $12.20 per GrainCorp share (45 cents higher than its initial $11.75 offer). ADM said the price tag matched GrainCorp's market capitalisation at the time.
GrainCorp's board said the revised offer 'materially undervalues' the company. While the board said it would be constructive about proposals in shareholders' best interests, it maintained that ADM's improved proposal did not change its view that the bid was too low.
Shares closed 0.65% lower at $12.30 on the day of the announcement, but remained about 63% higher year-to-date after soaring on news of ADM's original offer.
ADM holds a near 20% stake (reported as 19.9%) in GrainCorp. After the rejection it said it would consider its options regarding GrainCorp and its shareholding, and left open the prospect of selling down or exiting that stake.
Some analysts, including Moelis & Co's John Garret, have suggested ADM might go hostile. The article also notes analysts expect ADM would likely need to increase its bid materially to gain board support.
RBS Morgans analyst Belinda Moore said the bid was priced below the average acquisition multiple for agribusinesses (about 9.5–9.7 times forecast earnings). Those multiples equate to roughly $13.97–$14.33 per share, which is above ADM's $12.20 offer.
The Australian Bureau of Agricultural and Resource Economics and Sciences cut the 2012–13 crop estimate to 22 million tonnes from last year's record 29.9 million, citing dry weather. That downgrade could push grain prices higher (especially after US crop issues), but there are questions whether the conditions that produced GrainCorp's recent record earnings will continue, which could influence takeover valuations.
Shareholders should monitor any revised offers from ADM (including whether ADM increases its bid), statements about ADM's intentions for its 19.9% stake, and analyst commentary about valuation multiples and crop conditions that could affect future earnings. The board has signalled it will consider proposals that appear in shareholders' best interests.
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