Will a higher GrainCorp offer germinate?

ADM is keen on GrainCorp, but the market is expecting more.

PORTFOLIO POINT: Archer Daniels Midland may have to put up more seed if it’s serious about winning control of GrainCorp.

GrainCorp (GNC)

The Illinois-based agricultural group Archer Daniels Midland stepped up its interest in GrainCorp during the week by upping its stake another 5% to 19.9%, just below the takeover threshold.

Although a firm bid isn’t on the table as yet, ADM clearly means business. It won’t be walking away. Its indicative offer of $12.20 per GrainCorp share, up from the previous offer of $11.75, now values the business at $2.78 billion. But with the company’s share price closing today at $12.30, the market thinks the bid is undervalued and that something higher is in the wings.

The GrainCorp board still isn’t engaging with ADM and there are rumours circulating that there will be a bid at $13 a share. With ADM holding almost 20% now, it will be harder for another bidder to enter the scene.

I think the GrainCorp board will have to sit down with ADM soon to negotiate a price that’s acceptable. At current levels, GrainCorp is still a good buy – although not as good a buy as before. But there is limited downside and the upside is around 5%, which is a good trade.

Australand Property Group (ALZ)

Australand Property Group announced today that after the market closed on Friday it had received an unsolicited, indicative, non-binding proposal from GPT Group Ltd for its investment property portfolio, as well as its commercial and industrial businesses, for an undisclosed sum.

The proposal involves Australand retaining its residential business and remaining a listed entity. This proposal is similar to the Future Fund’s offer for AIX in that it is not strictly a takeover but an asset sale. Although it is indicative and non-binding, it shows that Australian REITs are back on the acquisition trail only a few years after suffering a near death experience in the GFC. Remember that GPT almost collapsed under its debt load back then! ALZ shares are a buy here, although we don’t yet know a price and the offer is highly conditional and subject to due diligence.

The company’s shares rose 19c today to close at $3.21.

Australand’s board says it has not formed a view at this stage and there is no guarantee that the proposal or any discussions with GPT will lead to a formal takeover.

Shareholders should take no action at this time.

Sundance (SDL)

As I discussed last week, this deal is fraught with danger and I believe investors should stay away.

After being placed in a trading halt last week, the company’s shares dropped sharply from 39c and fell another 2.9% today to close at 33c. The problem is that the deal has been delayed yet again, with Hanlong unable to finalise its financing arrangements from the China Development Bank for the 45c a share bid to proceed.

Sundance needs government mining approvals from two countries, Cameroon and Congo, and China Development Bank wants to review those permits before providing finance to Hanlong. Hanlong has requested to extend its takeover timetable, but Sundance has not agreed to this extension yet. The whole bid look to be on shaky ground.

As I tipped last week Sundance’s shares would drop heavily once they began trading again, and they have. The fact that Hanlong can’t get its funding in place continues to make this bid a concern.

Australian Infrastructure Fund (AIX)

The Future Fund’s purchase of AIX’s assets is shaping up as a very good deal for shareholders, and as I noted a couple of weeks ago (click here) the numbers stack up very well.

With AIX expected to go ex-dividend at the end of next week (December 21), it’s a good time to get in on the action. On my calculations at the current share price of $3.17, AIX shareholders can expect a worst-case return of 8.7% and a best-case return of 13%. Either way, these are both very good returns. With the Future Fund involved it’s definitely a safe deal with the potential for more upside.

There is a prospect that another bidder could come in over the top of the Future Fund, however I don’t think that’s very likely.

Seven West Media (SWM)

Kerry Stokes has taken the opportunity to creep up his shareholding in Seven West, acquiring a further 2.1%. This has lifted his stake from 33.1% to 35.2%.

I don’t think there will be a bid in the wings, but Kerry Stokes will probably continue to creep up the register when he gets a chance.

Ten Network Holdings (TEN)

There was some conjecture in the market on Thursday that Ten Network’s announcement of a $230 million capital raising could trigger a takeover bid by major shareholders Lachlan Murdoch, James Packer, Gina Rinehart and Bruce Gordon.

Ten came out of its trading halt today and plunged almost 23% as around 61 million shares hit the market. They closed at 25c.

The company is looking more appealing and has cash in the bank, and I’d like to think their ratings won’t get any worse. Ten is very cheap at current levels, but I don’t think there will be a bid forthcoming.

Takeover Action December 3-7, 2012

DateTargetASXBidder(%)Notes
3/12/2012Acer EnergyACNDrillsearch94.08Compulsory acquisition
4/12/2012AlescoALSDulux Group87.70
23/10/2012Clearview WealthCVWCrescent Capital Management62.70
5/12/2012Discovery MetalsDMLCathay Fortune13.78Unconditional. Board rejects.
4/12/2012Exco ResourcesEXSWashington H Soul Pattinson93.80Compulsory acquisition. Suspended
30/11/2012Globe InternationalGLBMariner Corporation0.00Board rejects offer
30/11/2012L&M EnergyLMENew Dawn Energy77.85Incl lock-up agreements
7/12/2012LinQ Resources FundLRFIMC Resources67.39FIRB approves. Ext to Dec 31
15/10/2012MintailsMLISeager Rex Harbour40.33
7/12/2012Neptune MarineNMSMTQ Corp50.02Unconditional
29/06/2012Real Estate Capital Partners USA Property TrustRCUWoolley GAL II32.81Incl 30.99% associates' holdings
1/10/2012United OrogenUOGIron Mountain Mining78.55Unconditional
15/11/2012Wentworth HoldingsWWMAustralian Renewable Fuels19.81Pre-bid
25/10/2012Wilson HTMWIGMariner Corp0.00
Schemes of Arrangement
23/11/2012CGA MiningCGXB2Gold Corp0.00Vote Dec 24
29/11/2012Cortona ResourcesCRCUnity Mining0.00Vote Dec 21. 
6/12/2012EndocoalEOCChina Yima Coal/Daton Group0.00Vote Feb. FIRB approves
20/11/2012Integra Mining IGRSilver Lake Resources0.00Vote Dec 19
6/12/2012SkywestSXRVirgin Australia0.00SCI, Singapore, approves
5/12/2012Sundance ResourcesSDLHanlong Mining Investment17.99Vote Feb 1
13/11/2012Texon PetroleumTXNSundance Energy Australia0.00Vote Feb
31/10/2012WAM CapitalWAMPremium Investors0.00Vote Dec 10
Foreshadowed Offers
4/12/2012GraincorpGNCArcher Daniels Midland19.90Revised indicative offer
21/11/2012Westside CorpWCLLiquefied Natural Gas0.00No offer proposed
20/11/2012Westside CorpWCLUnnamed party0.00Indicative takeover proposal
26/10/2012WHK GroupWHGSFG Australia0.00Discussions
Source: NewsBites