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GrainCorp's sweeter offer

07 Dec, 2012 03:00 AM
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Why should we sell it overseas when there's no reason to let it slip out of Australian hands?

A SECOND share market raid by US food giant Archer Daniels Midland (ADM) is unlikely to convince GrainCorp to buckle to takeover pressure.

ADM has sweetened its offer to buy the whole grain handling, processing and marketing company by lifting its October bid to $12.20 - up 45 cents a share (3.8 per cent).

But many market watchers are not convinced the offer is close to what the big Australiasian agribusiness is worth and with GrainCorp's sharemarket price jumping to $12.33 after Monday night's move, more activity could follow before Christmas.

Brisbane-based RBS Morgans analyst Belinda Moore said based on the smooth and sizeable 7.3 million tonne grain intake during the current season's harvest, plus broader earnings projections for 2012-13, the revised bid was "fairly opportunistic".

She said despite GrainCorp's strategic position in the Australian and Asian marketplace ADM was still pricing its target below the average acquisition multiple for agribusinesses which was 9.5 to 9.74 times their forecast earnings.

A more realistic bid would value GrainCorp shares around $14 to 14.33 each, particularly in light of its dividend track record and initiatives to lift underlying earnings during the next four years by $110 million.

Former GrainCorp director until 2008 and North West NSW graingrower Rick Freeman said given GrainCorp's long-term share price history anything less than $14 seemed to seriously undervalue shareholders' interests.

He noted that when a much smaller and less diversified GrainCorp floated on the stock market in 1998 its shares fetched up to $13.50.

In the past decade, well before the eastern Australian-based business became the world's fourth biggest maltster or its recent oilseed processing and handling acquisitions, shares had neared $11 in 2003, 2005, 2007 and 2008.

Although GrainCorp was significantly smaller than the multinational giants dominating global grain markets he said it was still a "prized Australian asset with a lot of potential".

"Why should we want to sell it overseas when there's no reason to let it slip out of Australian hands?"

"While we seem to have done a great job giving away a lot of big farming industry assets like Cubbie Station and other agricultural businesses, I'd be very keen for us to wake up and keep GrainCorp."

His views reflect a common theme of support for GrainCorp management among many shareholders who see the company as finally on track for consistent long term gains.

Victorian farmer and another former director, Leo Delahunty, agreed it would be disappointing if GrainCorp was absorbed into an overseas conglomerate like ADM, but even farmers had shrinking emotional ties to the company they had largely built.

"These days growers are more likely to be making a judgement based on which grain business services their farming interests best," he said.

"I'm impressed at how GrainCorp's been managing its business in the past few years, but at a farmer level I don't see as much emotional interest in what's happening to the ownership of our grain industry as you might have expected a few years ago.

"I don't recall much comment about Glencore buying Viterra, which in turn only recently bought ABB, which originally grew from what was AusBulk and the old barley board."

This week's ADM share move was timed just as GrainCorp's latest 35 cents/share half-year dividend payments were paid.

It was accompanied by ADM acquiring a further 5 per cent GrainCorp's share register on Monday, taking the multi-national's stake in the to just under 20pc.

Ms Moore said although ADM had a track record of patiently biding its time with past acquisition opportunities, if necessary (it had sat on 16pc ownership of Asian food giant Wilmar "for years"), the latest response to GrainCorp's recent rejection of its first offer suggested it wanted to keep the pace moving.

And while ADM's 19.9pc was marginally under the level required to make a full-blown takeover move, there was still nothing to stop another bidder competing for control.

"The latest move was a bit sooner than a lot of people expected but I think we'll see more activity - this offer is not what we consider a material uplift in valuation," she said.

A GrainCorp statement said directors would review the revised proposal and advise the market of it's recommendation to shareholders "in due course".

But it has also emphasised it holds a "unique portfolio" of integrated, strategic assets and is confident in its outlook and strategy to continue to deliver shareholder value.

Last month after announcing a record $205 million after tax profit (up 19pc), GrainCorp described ADM's $11.75/share proposal as materially undervaluing the company's Australian and international business and growing earnings potential.

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