* GrainCorp says $2.8 billion offer undervalues company
* U.S. agricultural giant says believes proposal is attractive
* GrainCorp profit up nearly a fifth to record high
* Australian firm seen holding out for 15-20 pct rise in bid offer - sources
By Narayanan Somasundaram and Colin Packham
SYDNEY, Nov 15 Australia's GrainCorp knocked back a $2.8 billion takeover offer from Archer Daniel Midland Co on Thursday, saying the bid undervalued the grains handler after a bumper harvest delivered a record annual net profit.
The U.S. agricultural giant's bid comes at a time of dramatic consolidation in the global grains sector amid intense competition to feed fast-developing countries seeking food security.
GrainCorp is the last available independent asset of scale in Australia, which is an attractive market due to a stable policy regime and good links to Asia, but so far no counterbid has emerged.
The Australian grains handler, which sources say is pressing for an offer up to 15 to 20 percent higher from ADM, used the 19 percent boost in profits to highlight its earnings power.
"Our business is ideally positioned to benefit from the growth in global demand for grain and processed grains, with global trade in our core grains expected to double by 2050," Chief Executive Officer Alison Watkins said in a statement.
ADM countered in a statement that it believed its offer "remains an attractive proposal."
Paul Xiradis, chief executive at fund manager Ausbil Dexia, which owns shares in GrainCorp, said a higher bid from ADM was likely, noting a 4 percent premium in the company's share price to the bid offer.
There is a long list of potential rival bidders that also include Cargill, Bunge, Louis Dreyfuss, Singapore's Wilmar International, China's Bright Food Group and COFCO.
Sources have also said Russian investment and trading group Summa had sought funding for a possible bid.
One source familiar with the bid approach said that in Asia a bid did not look likely from companies in Japan or China.
"The Chinese can afford to pay, but for them it's too domestic to get excited and none of the grain goes back into China," the source added.
GrainCorp is currently at the peak of its earnings cycle, buoyed by a strong harvest and record tonnage.
Its adjusted net profit of A$205 million ($214 million) for the year ended September 30, which excludes one-off items, was in line with analyst expectations of A$206 million according to Thomson Reuters I/B/E/S data.
The company announced a fully franked final dividend of 35 cents per share, comprising 20 cents ordinary and 15 cents special. That brought the total full-year dividend to 65 cents per share, up from 55 cents a year ago.
GrainCorp CEO Watkins said it had advised ADM that its offer, made last month, "materially undervalues GrainCorp."
"The GrainCorp board remains committed to maximising value for shareholders," it added in a separate statement.
GrainCorp shares were almost flat at 0245 GMT, up just 0.2 percent at A$12.20, or about a 4 percent premium to ADM's A$11.75 offer price.
Two other sources familiar with the ADM approach have told Reuters that GrainCorp is holding out for an offer 15 to 20 percent higher than ADM's October bid.
A 15 to 20 percent sweetened offer for Graincorp would raise the bid closer to A$14 a share and put it right at the top end of past deals that were valued at 9 to 10 times earnings before interest, depreciation and amortization (EBITDA). The current offer values GrainCorp at about 8 times EBITDA.
However, analysts expect earnings to fall to A$177.8 million in 2012/13 and to A$142.7 million the next year as harvest sizes retreat from last season's record.
GrainCorp sought to counter concerns over the anticipated drop, detailing on Thursday an updated growth strategy to boost underlying EBITDA of around A$110 million by the end of 2016.
For the coming year, the firm said GrainCorp Malt had forward sold 1 million tonnes of its 2013 production. Margins at GrainCorp oils are expected to be in line with historical performance amid firm domestic demand and growing international demand for canola oil, she said.