The stock price of GrainCorp Limited (ASX:GNC) climbed by 39 percent to A$12.50 per share in Sydney today, after announcing that the company received an indicative, non-binding takeover proposal from Archer Daniels Midland Company (NYSE:ADM), for A$2.68 billion or A$11.75 per share.
In its proposal, ADM also informed GrainCorp Limited (ASX:GNC) regarding its 14.9 percent stake in the Australian company through equity derivative contracts.
Li Lu’s Four Basic Principles of Value Investing
Li Lu is undoubtedly one of the most under-appreciated investors. The founder and Chairman of Himalaya Capital Management established his firm in 1997 based on the principles laid out by Benjamin Graham. Lu is a close friend of Charlie Munger and was once thought to be in-line to succeed Warren Buffett as the chief investment Read More
According to analysts, GrainCorp’s stock value surged due to investors’ speculation that the proposal of Archer Daniels Midland Company (NYSE:ADM) is not enough to acquire the largest grain handler in eastern Australia.
In a statement, GrainCorp Limited (ASX:GNC) said its board of directors is reviewing ADM’s proposal, which is subject to a number of conditions, including due diligence, exclusivity, and approval by the Archer Daniels Midland Company (NYSE:ADM)’s board. The Australian company said its board of directors “has not yet formed a view on its merits, and will keep the market informed of any material developments.”
Furthermore, GrainCorp Limited (ASX:GNC) expressed confidence in its outlook, strategy, and capability to deliver shareholder value. The company emphasized that it has a unique portfolio of integrated and strategic assets.
A report from Bloomberg cited an opinion from Belinda Moore, analyst at RBS Morgans Ltd in Brisbane, that ADM’s A$11.75 per share bid is not high enough, and a higher offer is required. She also speculated that other parties are interested in acquiring GrainCorp. She said, “A bidding war could emerge.”
Some of the companies possibly interested in GrainCorp include Cargill Inc., Louis Dreyfus Commodities BV, Bunge Limited (NYSE:BG), Wilmar International Limited (SGX:F34), Olam International Ltd (SGX:O32), Noble Group Limited (SGX:N21), COFCO Hong Kong Ltd., China Foods Ltd., and Bright Foods Group, according to a research note from Stuart Jackson, analyst at JPMorgan Chase & Co. (NYSE:JPM), on October 19.
On the other hand, Tim Tiberio, analyst at Miller Tabak & Co., LLC commented that ADM’s 14.9 percent stake “could potentially block a key competitor from taking out GrainCorp in near-term, or at the least require other interested parties to enter a bidding war, and bid up the value for global Agribusiness assets.” In addition, Tiberio said GrainCorp would fit ADM’s goal to expand its business operations in Asia. He suggested that it would cost ADM $3.5 billion or more to acquire the Australian company.
Meanwhile, The Buckingham Research Group analysts, John Roberts and Gaji Balakaneshan, commented, “We believe the deal would likely be accretive, as GNC represents a bolt-on acquisition with the elimination of public company overhead.”
According to them, the transaction would help ADM further diversify from crops in the United States. ADM generates 50 percent of its sales and earnings overseas.
Credit Suisse Group AG (NYSE:CS) and Green Hill serve as financial advisers for GrainCorp.