GrainCorp highlighted the growing concerns over Chinese regulatory hold-ups to commodity deals as it agreed a, sweetened, $3bn takeover offer by Archer Daniels Midland, but with a mechanism to compensate shareholders for delays.

GrainCorp on Friday agreed to a third offer by ADM, the US-based grain trading giant, priced at Aus$13.20-a-share, including Aus$1.00 in dividends.

ADM, which already owns nearly 20% of GrainCorp, opened its pursuit with an Aus$11.75-a-share offer in October, lifting the bid to Aus$12.20 a share in December.

However, Friday's agreed deal, which as yet depends on ADM approval of the GrainCorp books, also factors in an extra payout to shareholders should the deal become mired in Chinese regulatory approval, as have some other recent commodity tie-ups.

'Concentration of business operators'

Marubeni - the Japanese trading house which agreed a $5bn takeover of US grain trader Gavilon last May, and had expected to wrap up the deal in September - heard only on Tuesday that China's ministry of commerce, Mofcom, had approved the deal, and with significant conditions.

These included an undertaking that Marubeni and Gavilon continue selling soybeans to China as separate companies, with two different teams, to prevent the combined group gaining undue hold over the country's important imports of the oilseed.

"China is highly dependent on soybean imports, domestic soybean crusher concentration is low, and bargaining power is weak," Mofcom said.

A "concentration of business operators" as presented by the Maurbeni-Gavilon tie-up "may further weaken the bargaining power of [Chinese] soybean crushers".

Commodity concerns

Other commodity deals which Chinese regulators have held up include Glencore's $64bn merger with Xstrata, in which Mofcom approved last week with conditions including the sale of the Las Bambas copper project in Peru.

Glencore's $6bn purchase of Canadian grains trader Viterra, which was agreed by the companies in March last year, and which had been expected to finish regulatory approvals in about three months, took until December to gain Mofcom support.

In 2011, Mofcom also imposed conditions on the merger of Silvinit and Uralkali, the Russian potash fertilizer giants.

China's increasing scrutiny of commodity sector deals is viewed as a sign of its growing reliance on imports, and its wish to protect food security, and supplies of raw materials such as copper needed for its huge infrastructure build-out.

China is the biggest importer of agricultural commodities including cotton, rubber and soybeans, besides being a significant buyer recently of the likes of corn and wheat too.

'Tend to drag on'

ADM has agreed to pay GrainCorp shareholders an extra payout of 3.5 Australian dollar cents per share for every full month of regulatory delays beyond October 1, provided the Australian group stays in the black.

Don Taylor, the GrainCorp chairman, said that Chinese merger approvals "tend to drag on longer than we would normally expect in the marketplace".

A person familiar with the deal told Agrimoney.com: "We have seen a couple of instances where regulatory approval has taken a while."

The terms of Friday's deal "allows GrainCorp shareholders to continue accruing value while the approval process continues".

Chinese links

GrainCorp has some presence in China, through a bulk liquid port terminal in Shanghai, and it has some record of exporting feed wheat there, with more regular trade in malt and barley.

However, ADM has a more significant presence in China, employing 150 people there, and terming itself "significant supplier of corn, oilseeds and food and feed ingredients" to the country.

Besides in 2010 unveiling a $100m investment in the Agricultural Bank of China, ADM has also minority stakes in two joint ventures with Cofco, the Chinese state-owned grain trading giant.

ADM's Toepfer trading subsidiary has offices in Beijing, Dalian and Shanghai, and ADM also has a minority stake in Singapore-based Wilmar International, the major foreign oilseeds processor in China.

ADM said it would confirm the results of its due diligence process on GrainCorp books on May 2, when it would announce its first-quarter results.

agrimoney.com