GrainCorp Ltd. (GNC) jumped to a record as investors bet Archer-Daniels-Midland Co. (ADM)’s A$2.7 billion ($2.8 billion) cash takeover bid won’t be enough to win control of eastern Australia’s largest grain handler.

GrainCorp climbed 39 percent today to A$12.30 in Sydney trading, 4.7 percent greater than Decatur, Illinois-based ADM’s A$11.75 a share initial offer. GrainCorp is reviewing the bid after the world’s biggest corn processor said it had built a 14.9 percent stake in the Sydney-based company.

“The market is suggesting that A$11.75 is not high enough and that a higher offer is required or that there could be other interested parties.” Belinda Moore, an analyst at RBS Morgans Ltd. in Brisbane, said today by phone. “GrainCorp is now clearly in play and a bidding war could emerge,” Moore said earlier in an e-mailed note.

Buying GrainCorp, the only major publicly traded grain merchant in Australia left after the nation deregulated its wheat export system, would give control of seven of the eight ports that ship grain in bulk from the nation’s east coast as well as a substantial malt producer. Australia is the world’s second-largest wheat exporter.

Companies that may be interested in GrainCorp’s assets include Cargill Inc., Louis Dreyfus Commodities BV, Bunge Ltd., Wilmar International Ltd., Olam International Ltd., Noble Group Ltd., COFCO Hong Kong Ltd., China Foods Ltd. and Bright Foods Group, JPMorgan Chase & Co analyst Stuart Jackson wrote in an Oct. 19 note.
Normal Premium

Jacky Man, financial controller of China Foods Ltd., a Hong Kong-traded unit of Cofco, declined to comment. Yin Jiaohao, Beijing-based spokesman for Cofco, didn’t answer four calls to his mobile phone numbers. Noble spokesman Stephen Brown said he had no comment on the analyst reports. Hung Hoeng Chow, Olam’s associate general manager of investor relations, said she had no immediate comment. Pan Jianjun, Shanghai-based spokesman for Bright Foods declined to comment.

A phone call to the Singapore office of Wilmar, in which ADM has a 16 percent stake, wasn’t answered. Wilmar’s media team didn’t immediately respond to a request for comment about the company’s potential interest in GrainCorp.

RBS Morgan’s Moore values GrainCorp at A$9.77 a share, implying a takeover price of A$12.70 when including a premium of about 30 percent, she said. GrainCorp has three buy, six hold and four sell recommendations, with a mean 12-month price target of A$9.35, according to data compiled by Bloomberg.
Revenue Surge

Glencore International Plc and Hong Kong-based commodity trading company Noble Group are among groups that have targeted agricultural assets recently, betting on rising demand from Asia as living standards rise and diets improve.

Last year, GrainCorp’s revenue from Asia more than doubled from the previous 12 months, making the region the company’s second-biggest sales generator. ADM earned 52 percent of its revenue in the U.S. in fiscal 2012, according to data compiled by Bloomberg.

“This appears to be a well-placed asset for ADM in helping them penetrate the faster growing Asian markets,” Ian Horowitz, an analyst at Topeka Capital Markets Inc., said in an Oct. 19 note.

Credit Suisse Group AG and Greenhill & Co Inc. (GHL) are advising GrainCorp while Barclays Plc and Citigroup Inc. are acting for ADM. The U.S. company last week paid A$269 million for a 10 percent stake. ADM declined 1.9 percent to $28.52 at the Oct. 19 close in New York.
Reviewing Proposal

“The GrainCorp board is reviewing the proposal and has not yet formed a view on its merits and will keep the market informed of any material developments,” the company said in a statement. The offer is subject to due diligence, exclusivity and approval by ADM’s board, GrainCorp said.

GrainCorp, which produces more than 1 million metric tons of malt annually, handles as much as 60 percent of the grain crop in eastern Australia. It has about 20 million tons of storage capacity at more than 280 inland grain-handling sites, according to the company.

The Australian company, which traces its roots to 1916 and the Grain Elevators Board of the New South Wales state agriculture department, has seen its revenue surge since Australia’s 2006 decision to strip AWB Ltd. of its wheat export monopoly. An inquiry found AWB was among firms that made illegal payments to win contracts from the former Iraq regime of Saddam Hussein under the United Nations’ oil-for-food program.

GrainCorp’s profit will rise 26 percent to A$217 million in the year to March 31, according to the average of seven analysts’ estimates compiled by Bloomberg.


 

Bloomberg