RPT-DEALTALK-The Andersons: Target in global grains race may be a steal

Tue Oct 30, 2012 7:32am EDT

* The Andersons seen as target amid industry consolidation

* COO says not interested in a takeover

* Company took a hit from U.S. drought, some say undervalued

By Tom Polansek

Oct 30 (Reuters) - With its grain silos and ethanol plants dotting the U.S. Midwest, The Andersons may be the next takeover target for global companies eager to expand their footprint in the world's top grain exporter.

The diversified agricultural company may also be a bargain, say analysts and investors, as near-sighted shareholders punish it for the worst U.S. drought in 50 years, overlooking the long-term value of its assets.

The Andersons, built over 65 years from a small family-run trucking firm outside Toledo, Ohio, into the seventh-largest storer of U.S. grain, is perhaps the last, best chance for a global trader such as Glencore or Cargill Inc to boost their U.S. position in a single swoop.

The opportunity expanded this week when The Andersons said it would buy 12 grain elevators in Iowa and Tennessee, boosting its storage capacity by 30 percent.

On paper it seems a prime target, offering a combination of hard assets and logistics expertise, including nearly 140 million bushels of storage space once the latest deal closes. The Andersons also operates four ethanol plants and more than 23,000 railcars to ship grain.

The company is "probably worth double what they're trading at now" if it was to liquidate all its assets, says Rich Beaven, a portfolio manager and principal at Signia Capital Management, which owns 205,000 shares of The Andersons.

But the drought and a "limited amount of Wall Street awareness" about the company has weighed on its stock price, Beaven said. A series of multibillion-dollar agribusiness deals from Canada to Australia may change that.

"I wouldn't be surprised to see another player step in, maybe it's a Cargill, and make a run at them for sure," he said.

Run by Mike Anderson, the grandson of its founders, The Andersons has an enviable stronghold on grain supplies in the eastern U.S. Midwest. However, it lacks the global reach that has allowed larger rivals to profit from the drought by sourcing supplies from far-flung locations to deliver grain where it's needed.

At the same time, a host of new rivals are emerging to challenge the decade-long rule of the four "ABCD" companies that dominate the global agricultural business - Archer Daniels Midland Co, Bunge Ltd, Cargill and Louis Dreyfus Corp .

THANKS, BUT NO THANKS

The Andersons executives say they are not interested in a deal.

"We have taken a little bit of a hit here with this drought," Chief Operating Officer Harold Reed said in an interview on Oct. 19. "We are very happy with where we are."

He declined to say whether the company had been approached with takeover offers.

The most likely suitors were also tight-lipped.

Cargill declined to comment about whether it wanted to buy The Andersons. Bunge has said it does not comment on potential targets, and Glencore did not immediately respond to a request for comment.

A takeover bid might please both investors and help Anderson's flagging share price.

Since this April, just as a series of multibillion-dollar acquisitions by big grain traders signaled the industry's biggest shake-up in a decade, shares of The Andersons have slumped 25 percent to near their lowest level in a year.

On Oct. 19, as the buying frenzy intensified with news that U.S. agriculture giant ADM was making a play for smaller Australian shipper GrainCorp, shares of The Andersons dropped 2.7 percent in a day.

The Andersons' sagging share price, which closed at $37.69 on Monday, not far off its 52-week low, reflects the drought and investors' belief that a takeover isn't imminent, said Heather Jones, a managing director for BB&T Capital Markets.

"I don't think Andersons would even consider selling at these levels," said Jones, who believes shares will top $50 once the company moves past the drought.

To be sure, The Andersons, with about 3,000 employees, faces a rocky few months. The drought that shrank the U.S. corn crop by a quarter this summer will reduce the amount of grain to ship and store, and squeeze ethanol margins, both core revenue streams.

Net income in the quarter ended June 30 fell 35 percent from the same quarter a year earlier to $29.2 million. It will report earnings on Nov. 6.

Other firms were also hammered in the first half of the year before recently posting large rebounds in profit.

Bunge's earnings doubled in the quarter ended Sept. 30 from a year earlier after slumping nearly a third in the first half of the year. Cargill's earnings for the three months ended Aug. 31 more than quadrupled from a year ago, following its worst quarter in two decades.

TRUCKER BEGINNINGS

Harold and Margaret Anderson founded The Andersons in 1947 as a truck terminal for grain deliveries and, with their six children, built it into an operating partnership that focused on farmers.

The company soon began loading grain on to ships on the Maumee River in northwestern Ohio and, in Champaign, Illinois, opened the first U.S. elevator loading 100-car unit trains heading to the East Coast and to the Gulf of Mexico, a key export location.

It went public in 1996, and has grown to have a market value of $700 million.

The firm has some similarities with Gavilon, the No. 3 U.S. grain merchant, which is being acquired by Japanese trading house Marubeni Corp for $3.6 billion.

Although Gavilon had twice as much grain elevator capacity, both are mid-sized, domestically focused and a range of different agricultural businesses.

But the days of the stand-alone domestic merchant in North America may be dwindling as trade goes increasingly global. With up to 90 percent of the U.S. corn crop now consumed at home and volatile weather conditions upending trading patterns, a global reach can be critical for success, economists say.

Exhibit A was Glencore's $6.2 billion deal for Canada's top merchant Viterra, which is currently seeking government approvals; for Exhibit B, see ADM's bid in Australia.

ADM has about 400 million bushels of storage capacity in its domestic elevators and runs approximately 24,700 railcars.

The Andersons, however, have faced up to fierce competitors before - and prevailed.

Its relationship with farmers in parts of Ohio are so strong that rival Cargill has struggled to buy grain from them, said Jones at BB&T Capital.

Marc Schaller is among those with loyalty to the company. His relationship with The Andersons started when his father helped build a concrete silo for the company in the 1950s. His family later delivered crops to its grain elevators.

Now general manager of Countyline Cooperative in Pemberville, Ohio, Schaller calls The Andersons daily to find out how much they will pay for grain he receives from farmers.

"They are one of the top ones that we would look at when we look to sell something," he said. "Without a doubt they're very well respected."

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