Archer Daniels Midland Ups Bid to Buyout GrainCorp

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Archer Daniels Midland Company (NYSE:ADM) increased its non-binding proposal to takeover Graincorp Ltd (ASX:GNC) to A$12.20 per share, a 39.6 percent premium of the last closing price of its stock at A$ 8.74 per share on October 18.

Archer Daniels Midland Ups Bid to Buyout GrainCorp

Last October, Archer Daniels Midland Company (NYSE:ADM) previously offered A$11.75 per share, or A$2.68 billion, to buy out the GrainCorp (ASX:GNC).

According to the United States based agricultural business conglomerate, under its new proposal, the shareholders would keep the A$0.35 dividend payment approved by the board of directors of the Australian grain handler on November 15.

Archer Daniels Midland Company (NYSE:ADM) also increased its stockholdings in Graincorp Ltd (ASX:GNC) by 5 percent  to 19.9 percent. The United States based agricultural business conglomerate previously owned a 14.9 percent stake in the Australian grain handler. According to Archer Daniels Midland Company, the Australian Foreign Investment Review Board approved the increase of its stake in GrainCorp.

In a statement, Patricia Woertz, chairman and CEO of ADM, said, “We consider that our revised non-binding proposal reflects the value of GrainCorp’s business, taking into account GrainCorp’s 2012 results, its new initiatives announced on Nov. 15, and its recently announced ordinary and special dividends totaling A$0.35.”

Woertz added,”Our proposal also offers more certainty, greater value and immediate realization of potential future value for GrainCorp shareholders than GrainCorp’s stand-alone plan is a disciplined buyer, and any combination with GrainCorp must meet our key financial hurdles, taking into consideration the impact of the Australian agricultural cycle on GrainCorp’s earnings power.”

Analysts at the Buckingham Research Group believe that shares of Archer Daniels Company are trading below its book value at $27.49 per share. According to them, the drought put temporary pressure on the company’s margin.

In their research note to investors, John E. Roberts and Gaji Balakeneshan, analysts at Buckingham Research Group wrote, “ADM has increased its ownership in Graincorp Ltd (ASX:GNC) from ~15% to ~20%, and raised its bid 7% to A$12.20/sh (~A3bn)-essentially where stock has traded since initial bid. This is a moderate-sized deal that would increase ADM’s size by ~11%. We reviewed the initial bid in our Oct. 22 note. Short-term there could be pressure on ADM stock from deal arbs going long the target and short the acquirer.”

The analysts initiated a $37 per share price target on ADM stock and recommended a “buy” rating. According to them, the price target reflects 10x normalized EPS near $3.70 based on 8% return on capital. Robert and Balakeneshan noted, “This is the first time in over a decade, ADM has had back-to-back down EPS.” The company’s average EPS growth over the past ten years was 18%.

The stock value of Archer Daniels Midland Company (NYSE:ADM) is up by 0.34% to $26.79 per share during the afternoon trading at the New York Stock Exchange on Monday.

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