--Archer Daniels buys 10% GrainCorp stake
--GrainCorp says Archer open to bigger deal
--Australian agriculture assets appealing amid Asia boom
(Recasts lead, adds analyst remarks from twelfth paragraph)
By Gillian Tan and Caroline Henshaw
SYDNEY--Archer Daniels Midland Co. (ADM), one of the world's
biggest soft-commodity merchants, bought 10% of GrainCorp Ltd.
(GNC.AU) and is open to a bigger deal, the Australian grain company
said Friday.
GrainCorp's announcement of the transaction--which confirmed an
earlier Wall Street Journal report--underlined the growing appeal
of Australian agricultural assets at a time when Asian demand for
food and other soft commodities is expected to skyrocket.
GrainCorp indicated that U.S.-based ADM may be considering a
formal approach for the company, the largest of Australia's listed
agribusinesses which owns about half of the grain-storage
facilities in Eastern Australia. ADM already has a presence in
Australia through an 80% stake in smaller grain handler Toepfer
International.
ADM "wishes to engage in discussions with GrainCorp concerning a
potential transaction," the Australian company said in its
statement, adding it hadn't received any formal offer. "Should
GrainCorp receive a proposal from ADM, the board will review the
proposal as well as other options."
Credit Suisse is advising GrainCorp and Citi is advising
ADM.
ADM's move follows similar pushes by rivals Cargill Inc. and
Glencore (GLEN), both of which have taken a slice of Australia's
agricultural industry in a bid to cash in on booming food demand
from Asia's growing middle class.
A takeover of GrainCorp by ADM may herald a new wave of
consolidation in Australia's agricultural industry, which is
expected to earn the country as much as A$35 billion (US$36
billion) this financial year, according to government
estimates.
Some forecasters have said they expect world food demand to rise
by 60% from 2007 levels over the next four decades as the world's
population grows, and more people--particularly in
rapidly-expanding Asian markets--are able to afford to eat more
grain-intensive food, such as meat.
Rising demand in Asia may boost agriculture exports from
Australia and New Zealand by as much as $2.8 trillion by 2050,
according to research published Friday by local lender Australia
& New Zealand Banking Group Ltd. (ANZ.AU).
A block of 22.8 million GrainCorp shares, or 10% of the company,
was traded early Friday at A$11.75 a share--a 33% premium to its
last closing price of A$8.85. That valued the company at 2.7
billion Australian dollars (US2.8 billion). The highest GrainCorp
shares have traded since listing in 1998 is A$11.25, a peak reached
in February 2005.
GrainCorp's shares will remain in a trading halt until
Tuesday.
"Given the scale and strategic nature of GrainCorp's assets and
the fact that it is the last remaining significant grain company
capable of being taken over in Australia, we expect a number of
parties could be interested in GrainCorp and a bidding war may
emerge," RBS Morgans analyst Belinda Moore said.
The company mainly trades wheat, barley and canola, which it
supplies to more than 25 countries. While it sells mainly to North
American, European and Australian markets, GrainCorp like other
suppliers is keen to exploit the shift in economic power from the
West to Asia.
The company bought businesses from Australia's Gardner Smith and
Goodman Fielder (GFF.AU) in late August for A$472 million, to
create an edible-oils unit.
At the time, GrainCorp's Chief Executive Alison Watkins said she
expected group fiscal-2012 earnings before interest tax,
depreciation and amortization, or Ebitda, at the upper end of a
previously-guided range of between A$385 million and A$415 million.
The company's financial year ends Sept. 30.
Founded in 1916, GrainCorp was once part of the New South Wales
state government's Department of Agriculture. After being
privatized in the late 1980s, GrainCorp went on to acquire smaller
regional Australian grain handlers including Vic Grain, Grainco and
Hunter Grain.
In 2009, GrainCorp established its malt unit with the purchase
of United Malt Holdings for A$757 million, and last year boosted
the division with the acquisition of Germany's Schill Malz for 58
million euros (US$75.8 million).
Eastern coastal states, including New South Wales, Victoria and
Queensland, make up about two thirds of Australia's grain-producing
territory, and companies there already export about a third of
their output.
An equity analyst at Macquarie Group, Rikki Bannan, said in a
note to clients that an offer for GrainCorp at A$11.75 a share
would imply an Ebitda multiple of 8.2--a fraction below the 8.8
multiple offered by Glencore International (GLEN) in its pending
6.1 billion Canadian dollar (US$6.2 billion) acquisition of Viterra
Inc (VT).
The Glencore-Viterra deal is yet to be approved by China's
Ministry of Commerce.
Recent Australian transactions--including Agrium's A$1.2 billion
acquisition of AWB in 2010 and Viterra's A$1.6 billion acquisition
of ABB Grain in 2009--were at multiples of 9.5 times and 11.3
times, respectively. In late 2010, Agrium later sold a chunk of AWB
to Cargill.
"Given favorable underlying global agricultural market trends,
such as growth in populations and protein consumption per capita in
emerging markets, and the growing importance of global food
security, agriculture businesses are increasingly attractive
acquisition targets," Macquarie's Ms. Bannan said.
Macquarie believes ADM's interest in GrainCorp brings into focus
the potential for further consolidation in the listed Australian
agricultural sector.
Other listed agricultural stocks rose Friday, with Nufarm
(NUF.AU), Bega Cheese (BGA.AU) and Warrnambool Cheese & Butter
Factory Co. (WCB.AU) all outperforming the benchmark S&P/ASX
200 Index.
Write to Gillian Tan at gillian.tan@wsj.com and Caroline Henshaw
at caroline.henshaw@wsj.com.
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