UPDATE 2-ADM shares, options rise on takeover talk
(Recasts, adds analyst quote)
By Doris Frankel and Lisa Haarlander
CHICAGO, March 20 (Reuters) - Archer Daniels Midland Co. (ADM.N) shares rose nearly 5 percent on Tuesday and options activity rose on takeover speculation in the largest U.S. ethanol producer.
Several analysts and traders were doubtful that ADM was a potential leveraged buyout target.
ADM had no comment.
"It's hard to say whether this is legitimate," said Morningstar analyst Ann Gilpin. "There are just rumors circulating. We've seen this happen with other companies where there were rumors circulating and it never came to fruition."
For example, Gilpin said, Kraft Foods Inc. (KFT.N) was rumored to be a takeover target after its spin-off from Altria Group Inc. (MO.N).
ADM shares rose as much as 4.9 percent on the New York Stock Exchange to $35.90 before closing at $35.23. The Decatur, Illinois-based company had $36.6 billion in sales last fiscal year.
Analysts who cover ADM speculated on Tuesday that an energy or chemical conglomerate would be the most interested in acquiring the biofuel and food processing company, although they also downplayed the rumor.
ADM is the largest U.S. producer of ethanol, a biofuel that can be made from corn.
"We ... are hearing takeover rumors surrounding ADM among trading desks," said Jon Najarian, co-founder of Web information site optionmonster.com in Chicago. "But no one has put a name on who that buyer might be."
A major corn and soybean processor, ADM currently controls 1 billion gallons, or 20 percent, of U.S. ethanol production capacity. Production is forecast to rise to 8 billion gallons this year, up from 5 billion in 2006, according to the Renewable Fuels Association.
Options activity was also heavy as 34,801 calls and 10,814 puts changed hands on the day, far outpacing the normal volume of 10,399 contracts, according to market research firm Track Data.
"We think the options in ADM are active because of the potential (that) alternative fuels offer," Najarian said.
Particularly popular among investors have been the April ADM calls with a $35 strike price, indicating some market players are positioning for an announcement over the next few weeks, said Frederic Ruffy, an analyst at options education firm Optionetics in Redwood City, California.
On Tuesday, a total of 14,409 April 35 calls traded and fetched $1.45 a contract, up 50 cents on the day.
ADM shares have risen 7.1 percent this year, gaining support from a rebound in crude oil prices, which often drive up the price of ethanol.
The stock is still off its all-time high of $46.70 in May when ethanol prices peaked at more than $5 a gallon. Ethanol prices are currently around $2.60 a gallon. (Additional reporting by Caroline Humer in New York)
