Archer Daniels Midland: Third Time Pays for All


Believing the third time is the charm, grain processor Archer Daniels Midland submitted its third bid for GrainCorp and at least didn't have it rejected like the other two. Now it can go on and start its due diligence process, after which it can formally submit a takeover offer.

The acquisition saga began last October, after ADM took a nearly 15% stake in the Australian grains receiving and storage specialist and then decided it wanted to own the whole thing after all. It bid $12.13 per share cash for it, but it was promptly rejected. ADM then increased its position in GrainCorp to almost 20% and upped the amount it would pay to takeover the company to $12.73 but was again rejected as still undervaluing its operations despite the premium being offered.

ADM decided to let management and investors stew over the lost opportunity and let the matter lie for a few months until last week, when it announced it was sweetening the pot yet again in what perhaps could be seen as a best and final offer. Although ADM still values GrainCorp at $2.9 billion, it's now putting some gristle on the bone it's throwing investors, adding in $1 per share in dividends, which raises the total bid to $13.56, or $3.5 billion.

The grains processor is looking to GrainCorp to give it a launching paid into Asian markets, and it noted there is little geographic overlap between the two. More than half of ADM's revenues are generated in the U.S., and another fifth comes from France and Germany.

ADM needs to bolster its presence in the Orient, where traders estimate that it supplies 12% to 17% of the country's soybean imports. GrainCorp handles up to 60% of the region's wheat, barley, canola, chickpea, and sorghum crops through East Coast-based bulk grain elevators, where seven of its eight elevators are located.

Rivals such as Bunge already have a larger presence already in the region, with Bunge generating 18% of its $62.9 billion in revenues from Asia. It derives less than a third from the U.S., thus spreading out its geographic risk better.

In February, ADM reported second-quarter earnings that continued to be weighed down by its heavy reliance on ethanol production, which have been producing persistent, negative margins. So although the cooling-off period between its last offer and the one it made last week gave GrainCorp some time to think the merger over, it also proved to ADM that it needs this deal just as much.

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