GrainCorp lifts profit, snubs ADM takeover


US CROP giant Archer Daniels Midland reached an impasse when GrainCorp rejected its $2.7 billion takeover offer on Thursday.

GrainCorp – recording a $205 million after-tax profit for 2011-12 and lifting its dividend – said by 2016 it could achieve an extra $110 million in annual earnings before interest tax depreciation and amortisation, and that ADM’s $11.75-a-share cash bid undervalued the company. GrainCorp’s net profit the previous year was $171.6 million.

ADM responded that its bid, launched on October 19, remained ”an attractive proposal”. ADM holds 14.9 per cent of GrainCorp and has a history of patiently sitting on strategic investments including its 16 per cent stake in Singapore-based palm oil company Wilmar.

GrainCorp shares closed up 2¢ to $12.20 – a level reflecting a market expectation of a modest sweetener, perhaps to the value of future franking credits worth approximately 30¢ a share and of no value to ADM. On an earnings call, managing director Alison Watkins said she had told ADM’s chairman and CEO, Patricia Woertz, of the GrainCorp board’s decision on Thursday morning. She declined to answer analysts’ questions on whether others bidders had expressed interest in GrainCorp.

GrainCorp was ”a very attractive company and absolutely in compliance with our listing obligations”, she said. ”We’re not in the mindset of selling the business.”

Ms Watkins also said the four weeks it had taken GrainCorp to respond to ADM’s offer was ”very appropriate”, given it had two acquisitions to bed down, a harvest in progress and it was the financial year-end.

GrainCorp said that over the four years since the abolition of the single desk for wheat marketing, and after factoring in its new oils division, the company’s underlying business generated average EBITDA of $388 million. This was based on average country grain intake of 11 million tonnes and GrainCorp said an average of 10 million tonnes was more likely.

In 2011-12, EBITDA rose 18 per cent to $414 million. That included $250 million EBITDA from its core grain storage and handling business – a strong 28 per cent, or $55 million, increase on 2010-11, despite a 12 per cent drop in grain received from 17.2 million to 15.2 million tonnes.

Ms Watkins said a $110 million earnings uplift would come from previously announced strategic ”game-changers” across grains handling, marketing and growth in the malt business ($45 million), optimisation of its new oils and ports assets ($45 million) and $20 million from port flexibility following abolition of the Wheat Export Authority. This included offering grain customers three-year take-or-pay contracts, and by allowing the one in every six ships that failed survey to be moved aside so grain could continue to flow through the system.

Ms Watkins said GrainCorp expected a 20 per cent increase in normalised grain volumes by 2022.

RBS Morgans agribusiness analyst Belinda Moore said ADM’s bid undervalued GrainCorp but noted the company’s expectation of an extra $110 million EBITDA a year from $250 million in capital outlay was ”very high-returning”.

The original release of this article first appeared on the website of Hangzhou Night Net.

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