Archer Daniels Midland To Acquire Graincorp for $3.4B

Archer Daniels Midland Company (NYSE:ADM) announced yesterday that it has completed due diligence on Graincorp Ltd (ASX:GNC) and will proceed with a recommended takeover offer.

Archer Daniels Midland Company

Archer Daniels Midland Company (NYSE:ADM)’s Cash Offer

Archer Daniels Midland Company (NYSE:ADM) announced that it intends to make a cash offer to acquire the outstanding common shares of the company for A$12.20 per share under the terms of the takeover bid implementation deed signed with Graincorp Ltd (ASX:GNC) last week.

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The offer would imply an aggregate transaction value of about $3.4 billion. ADM said it has about $US 8 billion in available liquidity and would pay for the bid out of a combination of operating cash flow and borrowings.

Archer Daniels Midland Company (NYSE:ADM) said due diligence had confirmed that the deal could meet its financial objectives of returns of 200 basis points, or 2 per cent, above the company’s weighted average cost of capital in three years. ()

ADM is a large agricultural services company with over $80 billion of sales. It is in the business of converting agricultural harvest such as corn wheat soybeans and other products into basic ingredients for both consumer and industrial produced manufacturers.

GainCorp is the largest bulk grain handling company in the Australian east cost, and one of the leading malt producers globally with operations in North America, Europe and Australia.

Meanwhile, Archer Daniels Midland Company (NYSE:ADM)’s first-quarter earnings fell 33 per cent as the agricultural giant continued to be hurt by the 2012 drought in the US Midwest.

Yesterday Moody’s Corporation (NYSE:MCO) Investors Service placed ADM on review for a downgrade on the proposed deal.

Bank of America Merrill Lynch in its report released 28th April 2013 feel the deal could be roughly $0.20 accretive on an annual basis. This is based on the assumption that 1) 2013 consensus EBIT of $316 million, 2) ADM finances the remaining 80 percent stake for $2.2 billion at 3.5 percent interest rate, 3) a 30 percent tax rate.

Bank of America Merrill Lynch analysts view the Graincorp Ltd (ASX:GNC) acquisition aligns with Archer Daniels Midland Company (NYSE:ADM)’s strategy to grow its Ag Services and Oilseed business internationally, providing enhanced access to the Asian and Middle East markets. Their $28 PO is based on their calendar 2013 EPS estimate of $2.50, and an 11.2x multiple, at the high end of where the stock has traded over the last 2 years.

Bryan D. Spillane and his colleagues at Bank of America Merrill Lynch expect Archer Daniels Midland Company (NYSE:ADM) shares to under perform in the near intermediate term as they foresee earnings risk over the next few quarters as some of the tailwinds supporting earnings begin to wane. They anticipate favorable corn and soybean positions to roll off in the near term and expect earnings near peak levels, but below recent levels.