MARKETS SPECTATOR: Under and over on GrainCorp

Archer Daniels Midland has upped its offer for GrainCorp and brokers are mixed on whether the new price will reap a takeover harvest.

US agri-giant Archer Daniels Midland sweetened its offer for Australia’s GrainCorp overnight but is still unlikely to succeed, according to early comments coming in from the research community.

ADM upped its offer by 3.8 per cent, from $11.75 to $12.20, and also announced it had bought a further 5 per cent of the company at $12.20 per share, which now takes its holding to 19.9 per cent, the maximum level it can go to without making an unconditional takeover bid.

However, as alluded to above, the early comments from the broker community suggest it’s unlikely to be enough to win over the GrainCorp board.

"[It's] still not enough for the irreplaceable nature of GrainCorp's assets," RBS Morgan's analyst Belinda Moore told clients in a note. "We note the board recently stated that ADM's offer of $11.75 materially undervalued the company [and] don't view the increased offer as a material uplift in valuation," she added.

Based on RBS Morgan's 2013 forecasts, the new takeover offer represents an enterprise to EBITDA multiple of 8.5 times, which is still well below the average agribusiness acquisition multiple of between 9.5 and 9.7. The broker is recommending its shareholders hold on for a potentially higher bid.

In a differing view, from broker BBY, which has an underperform rating and $12.60 price target for the stock, it believes the new offer may be enough to win over the board.

"If ADM does not gain board support, a hostile bid that gains a controlling stake would be a good outcome for ADM, which could mop up the remainder at a later date if a poor wheat harvest depresses the share price," BBY noted.

So far, all we have heard from GrainCorp is that it will review the higher bid. Nonetheless, the stock is almost certain to open quite a bit higher when trading in its shares resume at 1100 AEDT.

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