GrainCorp offers top Asia return as deal seen closing: Real M&A

Some government, shareholder opposition still in play

Traders in GrainCorp Ltd. stand to pocket the biggest return on any major takeover in Asia by wagering that the Australian government will approve Archer-Daniels-Midland Co.’s $2 billion acquisition.

Amid opposition to the deal from some lawmakers, eastern Australia’s largest grain handler yesterday closed 8.4% below Decatur, Illinois-based ADM’s offer, the biggest discount among similar-sized acquisitions pending in Asia, according to data compiled by Bloomberg. After pledges by the newly elected government that Australia is “open for business,” Treasurer Joe Hockey is likely to allow the sale, said Morningstar Inc.

“The current discount makes it an attractive buying opportunity,” Dennis Hulme, an analyst at BBY Ltd. in Sydney, said in a phone interview. “It’s unlikely to be blocked.”

A U.S. purchase of Australian assets has never been barred under a 1975 law governing investment from overseas, said law firm King & Wood Mallesons. Arguments that the sale of Sydney-based GrainCorp is against the national interest make no sense, partly because ADM plans to spend more on local infrastructure, said Commonwealth Bank of Australia. There’s only a 10% chance the deal will be blocked, the bank said.

Before today, GrainCorp had fallen 9.4% this month after the West Australian newspaper reported on Nov. 15 that Prime Minister Tony Abbott was inclined to veto ADM’s offer or impose conditions that would make it unviable. He said later that day the decision was a matter for the treasurer. Hockey is due to rule on the bid by Dec. 17 after recommendations from the Foreign Investment Review Board.

ADM Offer

GrainCorp shares today jumped as much as 6%, the most in seven months, before closing up 1.3% at A$11.33 in Sydney. ADM rose 0.3% to $41.73 at 9:51 a.m. New York time. 

ADM said today it will spend an additional A$200 million ($182 million) on infrastructure, cap grain handling charges and offer storage facilities to other grain marketers. The Victorian Farmers Federation had said growers were concerned ADM would restrict access or raise fees.

“It’s likely to provide a bit more assurance to the market that the deal will go through,” Peter Rae, a Melbourne-based analyst at Morningstar, said by phone. “It does seem to be fairly comprehensive.”

Below bid

GrainCorp, which controls seven of eight terminals that ship grain in bulk from Australia’s east coast, closed yesterday at A$11.18. That was below ADM’s offer of A$12.20 for each share it didn’t already own. The bid values ADM’s largest-ever takeover at A$2.23 billion, excluding GrainCorp’s net debt. 

Among takeovers in Asia larger than $1 billion, no stock trades further below a bid, according to data compiled by Bloomberg yesterday.

“The chances of it being approved are considerably better than that,” John Maysles, a Los Angeles-based analyst at Elevation LLC, said in a phone interview. “A lot of this opposition was to be expected.”

Australia’s control of its food security is at risk, Deputy Prime Minister Warren Truss said this month. Truss leads the Nationals, a party that draws support from rural voters and is part of a coalition elected in September.

Senate Inquiry

Mining magnate and first-time lawmaker Clive Palmer plans to introduce a bill Dec. 9 opposing the deal. This month, he called GrainCorp “a great national institution” that shouldn’t be sold. A Senate committee inquiry into the nation’s grain- handling industry is due to report Dec. 11. Its interim report in August said ADM’s takeover could hurt competition. 

Angus Trigg, a spokesman for GrainCorp in Sydney, declined to comment on the likelihood of the deal’s completion. Jackie Anderson, a spokeswoman for ADM, the world’s largest corn processor, said in an e-mail that the takeover “would create significant value for grain growers, GrainCorp shareholders and the Australian economy.”

When asked at a conference this month when the deal may be completed, ADM Chief Executive Officer Patricia Woertz declined to comment, citing the “sort of sensitive period” leading up to Hockey’s ruling. Chief Operating Officer Juan R. Luciano said on an Oct. 29 earnings call that he expected the transaction to close next quarter.

After his election on Sept. 7, Abbott declared Australia “once more open for business.” In parliament last week, he said the nation has “long supported foreign investment.”

‘Sees Value’

Australia’s competition regulator has said it doesn’t plan to oppose the deal. Hockey will probably approve the deal with conditions that ease farmers’ concerns that a takeover will limit competition, said Hulme, the analyst at BBY.

The premier of Queensland state, Campbell Newman, said today that while he supports the deal, ADM should be required to sell two port terminals as a condition, the Australian said.

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