GrainCorp slams door on ADM
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 on Thursday closed 0.65 per cent lower to $12.30, but remain 63 per cent higher in the year to date after soaring on news of ADM's original offer.
GrainCorp told shareholders that 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 south of the $13 a share believed to be sought by GrainCorp, although there are questions about whether the good conditions underpinning GrainCorp's recent record earnings will continue in the new year.
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 yesterday 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 proposal represented a substantial premium to the prevailing GrainCorp share price at the time of our first approach," it said.
"We believe that our revised proposal properly values GrainCorp's business."
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 upward pressure on grain prices after US crop failures.
Frequently Asked Questions about this Article…
GrainCorp rejected ADM's revised takeover offer, saying the sweetened $2.8 billion bid materially undervalues the company. ADM, which holds about a 19.9% stake in GrainCorp, said it would consider its options and has left open the possibility of selling down or out of that holding.
ADM's improved offer was $12.20 a share, which was 45 cents higher than its initial $11.75-a-share offer made in October. GrainCorp's board and some analysts have suggested a higher price would be needed for board support.
On the day reported, GrainCorp shares closed 0.65% lower at $12.30, but they remained about 63% higher year-to-date after surging on news of ADM's original approach.
The GrainCorp board stated the revised proposal 'materially undervalues GrainCorp.' Analysts noted the bid was below typical agribusiness acquisition multiples (about 9.5–9.7 times forecast earnings), which would equate to roughly $13.97–$14.33 a share—higher than ADM's offer.
The article reports some analysts, including Moelis & Co's John Garret, suggested ADM might go hostile. ADM also said it would consider options 'with respect to GrainCorp and our 19.9 per cent shareholding,' including the possibility of selling down or exiting its stake.
RBS Morgans analyst Belinda Moore said the board's rejection was not a surprise and that ADM would likely need to increase its bid materially to obtain board support, given valuation norms for agribusiness acquisitions.
The Australian Bureau of Agricultural and Resource Economics and Sciences (ABARES) cut its 2012–13 crop estimate by about 2.2% to 22 million tonnes because of dry weather, down considerably from the prior year's 29.9 million tonnes. That downgrade, together with US crop problems, is expected to put upward pressure on grain prices—an industry factor that can influence GrainCorp's earnings.
Investors should monitor any further moves from ADM regarding its 19.9% stake, whether ADM increases its offer or goes hostile, GrainCorp's board statements on valuation, and crop forecasts (like ABARES updates) that can affect grain prices and GrainCorp's future earnings. Analysts suggest a materially higher bid would likely be needed for board approval.
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