ADM wins GrainCorp approval

June 2013 | DEALFRONT | MERGERS & ACQUISITIONS

Financier Worldwide Magazine

Archer Daniels Midland Co (ADM), the world’s largest corn producer, announced in April it had successfully concluded its pursuit of Australia’s GrainCorp Limited, agreeing a deal worth A$3bn ($3.1bn), subject to due diligence.

GrainCorp rejected the firm’s first two bids which were lodged soon after ADM began to accumulate a 19.8 percent share of GrainCorp stock in October 2012. GrainCorp’s board felt that ADM’s previous offers did not accurately represent the true value of the company. ADM originally offered A$11.75 per share, before sweetening the offer by 3.8 percent to A$2.8bn.

The firm sweetened its third offer in April, offering A$12.20 per share in cash, in addition to a one-time A$1.00 per share special dividend to shareholders. Incorporating this dividend, the total enterprise value of the deal including debt is A$3.4bn, 10.3 times the company’s EBITDA. In the wake of the third, improved offer, GrainCorp’s board took the decision to “unanimously recommend the ADM offer” to shareholders.

ADM has made a concerted effort to diversify in recent years, as it attempts to eliminate its overreliance on the US market in which it currently generates 52 percent of all sales.

Prior to the deal being agreed GrainCorp had been the last remaining major publicly traded grain merchant in Australia after a raft of mergers and acquisitions occurred in the industry following the government’s decision to strip AWB Limited of its wheat export monopoly in 2006.

Through its acquisition of GrainCorp, ADM will take ownership of around 60 percent of eastern Australia’s grain crop as well as a network of 280 storage facilities, which boast around 20 million metric tons of storage capacity. The company will also control seven of the eight ports that ship 90 percent of the grain from Australia’s east cost.

Since late 2011 there has been in excess of $10bn of mergers and acquisitions in the grain trading industry, and the acquisition of GrainCorp, which will be ADM’s biggest ever deal, will leave the company in a dominant position in the Australian market.

In a statement, ADM chairman and chief executive officer Patricia Woertz said “GrainCorp is a leader in the Australian agribusiness sector. Should the offer proceed, the addition of GrainCorp to our global network would fit our strategy and help to further connect Australia’s growers with growing global demand for crops and food, particularly in Asia and the Middle East. ADM and GrainCorp have complementary geographies with little overlap and highly compatible cultures. We look forward to working with the GrainCorp team and Australian growers to build on their history of success.”

GrainCorp’s chairman Don Taylor said “The GrainCorp board believes that the ADM offer highlights the strategic value of our business and unique assets, the program of strategic initiatives being undertaken and GrainCorp’s enviable proximity to the fast growing Asian markets.”

However, despite the positivity of the two firms, it appears that ADM’s acquisition of GrainCorp will still have some distance to run before it is finally closed. It is anticipated that it will take longer than usual for ADM and GrainCorp to obtain regulatory approval as the terms of the deal will need to be reviewed by Chinese antitrust regulators due to Graincorp’s business relationship with the country. The Ministry of Commerce of the People's Republic of China (MOFCOM), which will act as regulator, has recently adopted a much more aggressive stance. Indeed, MOFCOM took over a year to approve the merger of Glencore and Xstrata PLC. To that end, GrainCorp’s chairman Don Taylor noted that “Chinese approvals tend to drag on longer than we would normally expect in the market place”. Should there be a delay in the closure of the deal, GrainCorp has agreed to pay shareholders an additional dividend of 3.5 cents per month from October onwards.

Following the announcement of the deal, shares in GrainCorp jumped 7.9 percent to A$12.81, the firm’s highest price since it began trading in Sydney in 1998.

Richard Summerfield