Another piece of Australia heading overseas?

Graincorp receives a revised $2.8bn bid

Mike King

Mike King is a Fool.com.au Investment Analyst and Writer. He caught the investing bug more than a decade ago, at a time when the U.S. had invaded Iraq and fear reigned in the markets. His initial success as the markets took off encouraged his passion and thirst for knowledge. With 13 years behind him at one of Australia's largest domestic banks, Mike's passion for stocks led him to join a boutique funds management firm, where he stayed for four years. A seven-year stint in equity research at one of the largest investment banks in the world followed that, giving Mike a thirst to pursue his passion further. Mike holds a Diploma in Applied Finance and Investment and a Graduate Certificate in Financial Planning. His passion is to help retail investors invest better, and that passion was one of his primary reasons for joining The Motley Fool Australia in late 2011. Mike has written thousands of articles since joining, including for Fairfax Media, Yahoo!7, Ninemsn and has also appeared on ABC's The Business. You can see all of Mikes' holdings here

Published December 4, 2012 2:54 pm AEDT

Graincorp Limited (ASX: GNC) has today advised the market that it has received a revised takeover offer from US agribusiness firm, Archer Daniels Midland (ADM).

The revised bid offers $12.20 per share in cash, with investors keeping the dividend of 35 cents announced on November 15. At the time of writing, Graincorp shares were trading at over $12.32, possibly reflecting expectations of a higher bid. Graincorp's board has not recommended the takeover yet, advising the market that it is still reviewing the offer.

The current bid trumps the previous offer of $11.75 per share, made in late October, which was rejected by the board, which stated that it materially undervalues Graincorp. Analysts have speculated that an offer of at least $13 would be needed to convince the Graincorp board to recommend it.

ADM has extensive grain interests around the world, and holds a stake in Singapore-listed Wilmar International, which in turn owns 10% of baker Goodman Fielder (ASX: GFF).

As we have mentioned before, with the world's population expected to hit 9 billion people by 2050, the opportunities in farming and food production are huge. Global grain demand is expected to grow by 1 billion tonnes and Graincorp, or its owners, stand to benefit from that fact.

Should Graincorp be taken over, that will leave very few listed Australian grain companies left on the ASX, following takeovers of ABB Grain and AWB (Australian Wheat Board) in recent years. That could put shares in other agricultural companies, like Ridley Corporation (ASX: RIC), Select Harvests (ASX: SHV), and PrimeAg Australia (ASX: PAG) in high demand.

The Foolish bottom line

We may see Graincorp knock the second bid back, and potentially hold out for an offer north of $13.00. While ADM would like to get Graincorp as cheap as possible, the company may be prepared to pay a much higher price to get its hands on Graincorp's valuable assets.

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Motley Fool writer/analyst Mike King doesn't own shares in any companies mentioned. The Motley Fool's purpose is to help the world invest, better. Take Stock is The Motley Fool's free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. Click here now to request your free subscription, whilst it's still available. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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