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ADM to Proceed With $2.3 Billion GrainCorp Deal

May 2, 2013
 
 

May 2 (Bloomberg) -- Archer-Daniels-Midland Co., the largest corn processor, said it will proceed with its proposed $2.3 billion acquisition of GrainCorp Ltd. after completing a review of the Australian crop handler’s finances.

The deal "provides an excellent platform to serve growing global demand, particularly in the Middle East, Africa and Asia," Decatur, Illinois-based ADM’s Chairman and Chief Executive Officer Patricia Woertz said on a conference call with analysts today.

Buying GrainCorp for A$12.20 a share would be ADM’s largest takeover and give it the only major publicly traded grain merchant left in Australia after the country deregulated its wheat-export system. The deal would hand to ADM control of seven of the eight ports that ship grain in bulk from Australia’s east coast.

The deal will add to earnings in the first full year after completion of the takeover, which ADM will fund with debt and operating cash flow, the company said in a statement. "Depending on the U.S. harvest and its impact on crop prices, working capital could also be a source of funding in the second half of the year," said Woertz, who told analysts a final decision on the balance of funding won’t be made until closer to the deal’s completion.

ADM has about $8 billion in available liquidity, the company’s chief financial officer, Ray Young, said during the call.

 

Misses Estimates

 

The company reported first-quarter profit that missed analysts’ estimates as crop supplies declined after last year’s drought in the U.S.

ADM said April 25 it won agreement to acquire GrainCorp after proposing the Australian company pay dividends of as much as A$1 a share while awaiting regulatory approval for the takeover. The company, whose initial A$11.75-a-share bid was rejected in November, raised the offer by 45 cents in December. It already has a 19.9 percent stake in GrainCorp, according to data compiled by Bloomberg.

The deal will create cost savings of as much as A$70 million by the end of the second year, ADM said in a slide presentation to investors published on its website.

Approvals are required from Australia’s Foreign Investment Review Board and China’s Ministry of Commerce. Woertz said the process was under way, but didn’t say when she expected approvals to be granted.

 

‘Solid Fit’

"ADM’s multi-stage approach to acquiring GrainCorp enabled the company to maintain a disciplined approach to global deal- making, while also ensuring that GrainCorp could sell the final transaction to its board of directors and core shareholders," Tim Tiberio, a New York-based analyst for Miller Tabak & Co. who has a buy rating on ADM, said in a report on April 29.

"We view GrainCorp as a solid fit for ADM’s vision of expanding its leverage to growing consumer demand for protein/processed foods in the Far East."

Net income fell to $269 million, or 41 cents a share, from $399 million, or 60 cents, a year earlier, the company said in a separate statement yesterday after the close of trading in New York. Profit excluding inventory costs and provisions made in connection with a bribery investigation was 48 cents, compared with the 50-cent average of nine estimates compiled by Bloomberg.

 

‘Challenging Quarter’

Sales increased to $21.7 billion from $21.2 billion, compared with the $21.6 billion average of seven estimates.

"This was a challenging quarter, with agricultural services negatively impacted by the ongoing effects of last summer’s U.S. drought," Woertz said in the statement.

The company said in November it was in talks with the Department of Justice and Securities and Exchange Commission over possible violation of the U.S. Foreign Corrupt Practices Act. ADM said yesterday it expects a resolution to the discussions this year and made a $25 million provision to cover potential assessments that may be imposed.

ADM fell 1.7 percent to $33.01 in New York at 5:18 p.m. yesterday after regular trading ended.


--Editors: Jason Rogers, Iain Wilson

 

To contact the reporters on this story: Shruti Date Singh in Chicago at ssingh28@bloomberg.net; David Stringer in Melbourne at dstringer3@bloomberg.net

 

To contact the editor responsible for this story: Simon Casey at scasey4@bloomberg.net

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