* GrainCorp says $2.8 billion offer undervalues company
* U.S. agricultural giant says believes proposal is
* 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
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
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, leading to speculation of
The Australian grains handler, which sources say is pressing
for an offer up to 15 to 20 percent higher from ADM, highlighted
a 19 percent boost in profits and lifted its long-term earnings
"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 share price to the bid
Another Sydney-based equity analyst said GrainCorp was such
an attractive asset that it was too early to rule out a rival
bid and felt the process could take six months to play out.
"It has such a good position on the Australian east coast,
one of the few wheat exporting regions in the world, and you
aren't going to replicate those assets," said the analyst, who
declined to be named as he was not authorised to speak to the
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 analyst singled out Cargill and Louis Dreyfus
as potential bidders -- two of the four "ABCD" firms (ADM, Bunge
, Cargill and Louis Dreyfus) that have dominated the
global agricultural business for decades.
Other possible bidders include Singapore's Wilmar
International, China's Bright Food Group
Sources have also said Russian investment and trading group
Summa had sought funding for a possible bid.
However, one source familiar with the bid approach said an
offer 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 total full-year dividend of 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."
GrainCorp shares ended almost flat, up just 0.2 percent at
A$12.20, or about a 4 percent premium to ADM's A$11.75 offer
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.
Such a 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.
"The value really depends on the 2013 outlook, and it hasn't
been the best finish," said Jonathan Snape, an analyst at Bell
Porter. "If you look at the earnings in 2012, GrainCorp are
benefiting from two years of record crops and I don't believe
that is the best basis for a multiple-based valuation."
Seeking to counter concerns over future earnings, GrainCorp
said it was focusing on an international grain supply chain and
that it was confident of achieving an additional A$110 million
in underlying EBITDA by the end of 2016.