REFILE-UPDATE 2-Australia's GrainCorp profit slides, takeover talk persists

Wed May 14, 2014 11:27pm EDT

(Corrects spelling of UPDATE tag)

* GrainCorp reports 43 pct drop in H1 profits

* Shares linger near five-month high

* Takeover by ADM still possible - analyst

By Colin Packham

SYDNEY, May 15 (Reuters) - Australia's largest listed agribusiness GrainCorp posted a sharp fall in profit on Thursday on lower east coast grain production and could also face difficult conditions this year with the expected onset of an El Nino weather pattern.

GrainCorp shares, currently near a five-month high, still have a premium on expectations that it could eventually be taken over even after a bid by Archer Daniels Midland Co fell through last year, analysts say.

ADM's planned A$2.8 billion ($2.62 billion) takeover aimed at giving the U.S. agribusiness giant greater access to fast-growing Asian markets was rejected in November by Australia after Treasurer Joe Hockey said it was not in the national interest.

However, Andrew Robb, Australia's Minister for Trade and Investment, said in March that "there may be another opportunity at some stage" for ADM to pursue GrainCorp. He also said he was open to ADM increasing its holding of GrainCorp to 25 percent from just below 20 percent currently.

"There is a takeover premium included in GrainCorp's share price," said Belinda Moore, an equity analyst at RBS Morgans.

Shares in GrainCorp fell as much as 1 percent in early trade after the announcement of a profit slide. They later pared losses to trade at A$8.93 by 0225 GMT, just shy of a five-month high of A$8.97 touched on April 24, the highest since ADM's acquisition of GrainCorp was rejected.

"We see every few months ADM making some comment about its commitment to it's GrainCorp shareholding and future plans. We expect that GrainCorp will be taken over at some point in the future," added Moore.

GrainCorp's chief executive, Alison Watkins, resigned in December after the government rejected the takeover deal and the company said it had not had further contact with ADM.

Interim chief executive Don Taylor said uncertainty surrounding GrainCorp's future was being addressed in talks with potential candidates on a new chief executive.

"No one wants to leave a good position and come somewhere where they think they could be completely out of pocket and out of a job in the short-term," said Taylor.

DRY EAST COAST

GrainCorp's net profit for the six months to March 31 was A$50 million ($46.9 million), down 43 percent from A$88.2 million a year ago. Most analysts do not forecast half-year profits, but Thomson Reuters I/B/E/S consensus forecast pegs full-year net profit at a four-year low of A$93 million, down from A$174.5 million a year ago.

The grain handler blamed the fall earnings on a smaller grain harvest from Australia's east coast, where it has most of its business.

Despite Australian wheat production during the 2013/14 season topping 27 million tonnes for the only the third time, production across New South Wales and Queensland suffered as hot, dry weather limited production.

Wheat production across Australia's east coast fell to a four-year low of 6.6 million tonnes, the Australian Bureau of Agriculture and Resource Economics and Sciences said.

And GrainCorp could be poised to endure further challenging conditions.

While wheat production during the current season has got of to a better start, buoyed by timely rains, the Australian Bureau of Meteorology has warned that the chance of an El Nino as early as July is about 70 percent.

The weather pattern, which can trigger droughts across Australia's east coast, could see significant curbs on production, especially if forecasts for a strong El Nino occur.

The last strong El Nino occurred in 1997 when wheat production fell to just 10.6 million tonnes.

($1 = 1.0671 Australian Dollars) (Editing by Jane Wardell and Ed Davies)

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