WRAPUP2-ADM's quest for Australia's GrainCorp heats up grain race

Fri Oct 19, 2012 2:49pm EDT

* ADM buys 10 percent stake; values GrainCorp at $2.8 bln
    * ADM stake now stands at 14.9 percent
    * Deal comes amid surge in global grain prices
    * Deal could give ADM stronger platform to supply Asia
    * Wilmar and Bunge also seen as potential buyers.


    By Jane Wardell and Karl Plume
    SYDNEY/CHICAGO, Oct 19 (Reuters) - U.S. agriculture giant
Archer Daniels Midland raised the stakes in the global
race for grains trading power on Friday, by seeking talks to buy
smaller Australian shipper GrainCorp to build up its
platform in Asia.
    While several of Decatur, Illinois-based ADM's up-and-coming
rivals have focused on big deals in North America, Chairman and
CEO Patricia Woertz's potential $3 billion deal would add a vast
network of elevators and terminals in the world's No. 2 wheat
exporter to its already key position supplying China.
    After announcing it had bought an additional 10 percent in
GrainCorp early Friday, on top of a 4.9 percent stake it already
owned, ADM said it had approached the company in hopes of
convincing the board to bless a full cash takeover.
    "GrainCorp is a well-managed company, and together with ADM
would be better positioned to connect Australia's farmers with
growing global demand for crops and food, particularly in Asia
and the Middle East," ADM Chief Executive Patricia Woertz said.
    GrainCorp said ADM had sought talks on a "potential
transaction" but had not made a formal proposal. It has
requested a share trading halt until next Tuesday and said the
board will look at the proposal as well as other options to
maximise value for shareholders.
    The 10 percent purchase comes at a time of dramatic
consolidation in the global grains sector amid intense
competition to feed fast-developing countries seeking food
security.
    A drought this year has hurt grains supplies from the United
States and increased global supply anxiety as rising demand for
soy and corn from China helps push up grain prices.
    "Australia has an opportunity to be a good source as a food
basket for Asia as Asia's appetite for quality produce
increases," said Akshay Chopra, portfolio manager at Karara
Capital in Melbourne.
    It also comes as the four "ABCD" firms that have dominated
the global agricultural business for decades -- ADM, Bunge
, Cargill and Louis Dreyfus -- are emerging from
a period of dismal earnings, as tough new competitors and
volatile markets fuelled by financial crises cut earnings.
    
    
   
    
    AUSTRALIA'S WHEAT IN FOCUS
    The bid is not ADM's first signal that it wants to bulk up
and push ahead of less acquisitive rivals like Cargill while
seeking to fend off eager new challengers such as Glencore
 and Singapore's Olam.
    Nearly seven months ago ADM pulled out of the race to buy
Canadian grain company Viterra, which was eventually
bought by No 1 global commodities trader Glencore in a deal
worth C$6.2 billion ($6.2 billion then).
    In May, fifth-largest Japanese company Marubeni 
bought U.S. grain merchant Gavilon, whose owners included
billionaire investor George Soros, highlighting the intensifying
competition for a foothold in the North American supply chain.
    Australia is a coveted market as the world's second-largest
wheat exporter with a stable government and policy regime, yet
some traders who know ADM primarily as the top U.S. corn
processor and a major producer of ethanol were surprised.
    The deal "comes as a surprise because GrainCorp is largely
in the grain elevator business", says Charlie Sernatinger,
senior vice president at ABN AMRO in Chicago.
    GrainCorp operates seven of the eight bulk grain elevators
in eastern Australia, handling as much as 60 percent of the
region's wheat, barley, canola, chickpea and sorghum crops. It
has about 20 million metric tons of storage at more than 280
inland grain handling sites, the company says.
    The wheat market has come under intense focus this year
after a drought devastated the crop in Russia, leading to
speculation that Moscow would limit exports -- like it did in
2010, rallying prices at the Chicago Board of Trade.
    Ken Smithmier, a grains analyst with the HighTower Report in
Chicago, said ADM's purchase of GrainCorp could be a "smart,
strategic" move at a time when wheat has been making inroads
into the feed market in place of high-priced corn.
    "We are seeing Japanese (livestock) feeders shift their
corn-wheat ration. Wheat use is on the rise as it has become
more popular as a feed over the last couple of years," he added.
    
    REGULATORY RISK
    ADM bought 22.8 million shares worth A$268 million ($278
million), or 10 percent, of GrainCorp before the market opened
on Friday at A$11.75 a share, a 33 percent premium to the share
price close on Thursday. ADM said later that it had already
acquired a 4.9 percent share, which had not been reported. 
    ADM already has a presence in Australia through its 80
percent stake in German-based global grain handler Toepfer
International, which purchases grains and pulses from Australian
farmers for sale domestically and overseas.
    That may raise concerns over consolidation.
    "It will be interesting to see how this works as ADM owns a
sizable chunk in Toepfer which has big presence in Australia,"
said a manager with an international trading company who
requested anonymity as he was not authorised to speak to the
media.
    Macquarie analysts said in a note published before ADM's
share purchase that Wilmar International and Bunge
could also be potential buyers for GrainCorp.
    ADM holds a 16 percent stake in Wilmar.
    Growing international interest in Australia's agricultural
businesses has also led to a backlash in some quarters. The
government's recent approval of Chinese textile group Shandong
Ruyi's purchase of Cubbie Station, a giant cotton farm in
Queensland was criticised by opposition lawmakers.
    An investigation by Australia's Foreign Investment Review
Board will be triggered if ADM lifts its stake in GrainCorp to
15 percent or more.
    FIRB in July gave the green light to the Glencore's takeover
of Viterra, which holds nearly all the grain storage capacity in
South Australia after buying Australia's ABB Grain in 2009.
   Canadian fertiliser maker and farm products retailer Agrium
Inc  bought AWB Ltd, Australia's top bulk wheat
exporter, in 2010 for A$1.2 billion. 
    Business has been booming in the sector and GrainCorp raised
its 2012 earnings before interest, tax, depreciation and
amortisation (EBITDA) forecast to A$385-A$415 million in May
after posting stronger-than-expected first-half earnings.
    At midday on Friday, ADM shares were down 62 cents, or 2.13
percent, at $28.45 at the New York Stock Exchange. GrainCorp
shares were down 2.1 percent at A$8.85 in Australia.
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