* Graincorp rejects revised $2.9 bln offer from ADM
* ADM says offer fair, considering options
* Higher offer likely, but may not be significantly more
* Lines of communication between sides remain open - source
By Jane Wardell
SYDNEY, Dec 13 GrainCorp Ltd on
Thursday rejected a sweetened $2.9 billion bid from Archer
Daniels Midland Co, putting pressure on the U.S.
agribusiness giant to boost its offer for Australia's last major
independent grains handler.
ADM was likely to lift its A$12.20 bid, as it targets the
purchase to give it a doorway to supply fast-growing Asia
nations seeking food security, analysts said, while cautioning
that a significant hike was unlikely.
"They might tinker with it on the margins but it's probably
not going to be significantly higher," said Min Tang-Varner, an
analyst who covers ADM for Morningstar in Chicago.
Grains, food and agricultural businesses in Australia, the
world's second-largest wheat exporter and an attractive market
due to stable policies and good links to Asia, have been snapped
up by large global players in recent years.
GrainCorp said the ADM offer -- increased last month by 3.8
percent from the original A$11.75 per share bid, a 40 percent
premium to the share price at the time of that first approach in
October -- continued to materially undervalue the company.
ADM, which has built up a 19.9 percent stake in GrainCorp,
said its revised proposal represented fair value and would
consider all its options.
A source close to the talks, who was not authorised to speak
publicly, said lines of communication between the two sides
Analysts have previously told Reuters the revised bid was
still below the average acquisition multiple for Australian and
global agribusinesses based on forward earnings.
"ADM will be very cautious about the price it is prepared to
pay," said Dennis Hulme, a senior analyst at BBY Ltd in Sydney.
"They'll most likely increase the total value of the bid to
A$12.50 to A$12.60, including the value of franking credits,
restructuring the offer to include a special dividend of around
80 Australian cents," Hulme added.
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.
The company took in 12.2 million tonnes of grain last
season, when a bumper harvest delivered a record annual net
But GrainCorp's earnings are forecast to slide as
Australia's grains harvest retreats from record levels due to
dry weather in key growing areas.
So far ADM's move has failed to flush out another bidder,
which could drive the offer price higher.
Rumoured potential rival bidders include Cargill,
Louis Dreyfus, Singapore's Wilmar International,
China's Bright Food Group and COFCO.
ADM could also decide to take the gloves off in the battle.
"It would suit ADM to go hostile very well, even short of 50
percent, and when the next drought rolls around, they snap up
the balance at a cheaper price," Hulme said.
Morningstar's Tang-Varner said ADM needed to be careful it
did not risk its access to short-term funding by damaging its
credit ratings with an offer.
Moody's Investors Service earlier this month lowered its
outlook for ADM to negative from stable after it raised its bid.
The rating firm said it would place ADM's ratings under review
for a downgrade if ADM reached an agreement on a purchase price
for GrainCorp or pursues a hostile acquisition.
"They just have to be very conscious of the credit rating
that they have," Tang-Varner said. "I don't think they would
like to impair that for the sake of getting a new asset."