ADM swoops on Australia's GrainCorp in Asian push

SYDNEY Fri Oct 19, 2012 2:15am EDT

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SYDNEY (Reuters) - Archer Daniels Midland (ADM.N) bought a 10 percent stake in GrainCorp (GNC.AX) on Friday, valuing the Australian grains handler at $2.8 billion, and is seeking talks on a takeover that would give the U.S. agribusiness a stronger platform to supply Asia.

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 grains prices.

ADM's move also comes after a wave of industry consolidation and could attract rival interest from other major players, also seeking a bigger role in the global agricultural supply chain beyond the United States and Canada.

GrainCorp said on Friday that ADM had sought talks on a "potential transaction" but had not made a formal proposal.

"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.

Australia, the world's second-largest wheat exporter, supplies Asia's top buyers, Indonesia, Japan and South Korea.

China has been buying up Canadian spring wheat over the past two weeks, and traders said the country was in need of large quantities of high-protein wheat.

GrainCorp handles as much as 60 percent of eastern Australia's grain crop and has about 20 million metric tons of storage at more than 280 inland grain handling sites, according to the company.

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.

The Australian firm 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

ADM was not immediately available for comment.

ABCD COMPANIES

ADM already has a presence in Australia through grain handler Toepfer International and a manager with an international trading company said there could be concerns over the U.S. firm strengthening its position further in Australia.

"It will be interesting to see how this works as ADM owns a sizable chunk in Toepfer which has big presence in Australia," said the manager, who requested anonymity as he was not authorised to speak to the media.

ADM owns 80 percent of Toepfer, which purchases grains and pulses from Australian farmers and delivers to both domestic and international customers.

Charlie Sernatinger, senior vice president at ABN AMRO in Chicago, said ADM's move "comes as a surprise because GrainCorp is largely in the grain elevator business while ADM is in processing."

ADM, the largest corn processor in the United States and a major producer of ethanol, is one of the "ABCDs", the four big agricultural players in the United States rounded out by Bunge (BG.N), Cargill CARG.UL and Louis Dreyfus.

The quartet have dominated the global agricultural business but their earnings have been hit by the drought in the United States that has savaged crops.

Russia has also been hit by a drought in recent months, leading to speculation that Moscow could limit exports and driving up prices at the Chicago Board of Trade.

REGULATORY RISK

Macquarie analysts said in a note published before ADM's share purchase that Wilmar International (WLIL.SI) 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 C$6.1 billion ($6.21 billion) takeover by Glencore International Plc (GLEN.L), one of the world's largest commodities suppliers, of Canadian grain handler Viterra Inc VT.TO.

Viterra holds nearly all the grain storage capacity in South Australia after buying Australia's ABB Grain in 2009.

Canadian fertilizer maker and farm products retailer Agrium Inc (AGU.TO) (AGU.N) 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 amortization (EBITDA) forecast to A$385-A$415 million in May after posting stronger-than-expected first-half earnings. ($1 = 0.9632 Australian dollars) ($1 = 0.9823 Canadian dollars)

(Additional reporting by Victoria Thieberger in Melbourne, Naveen Thukral in Singapore and K.T. Arasu in Chicago; Editing by Ed Davies)

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