ADM sweetens Graincorp offer

Archer Daniels Midland keen to get its deal over the line

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Published November 27, 2013 12:54 pm AEDT

US agricultural giant Archer Daniels Midland (ADM) has announced a new package of additional commitments as it attempts to get its proposed acquisition of Graincorp (ASX: GNC) over the line.

ADM has announced an additional $200 million investment to strengthen Australian agricultural infrastructure including rail enhancement projects, caps on prices for grain handling charges at silos and ports, access to infrastructure for growers and third parties, open access to port services and a Growing Community Advisory Board.

ADM says these commitments are in addition to the existing capital expenditure and other commitments including a $50 million enhancement to Graincorp planned capital expenditure over the next few years. All up, ADM has committed to support the Graincorp business with capital investments totalling $500 million.

The move comes ahead of a Senate inquiry next week and before treasurer Joe Hockey is due to make a decision on whether to approve the transaction going ahead. While the Australian Competition and Consumer Commission (ACCC) has already approved the deal, ADM still requires the treasurer's approval as well as the Chinese Ministry of Commerce.

ADM faces significant opposition from a number of sectors including politicians, farmers and many Australians. Some farmers are worried that Australia could miss out on the benefits of a boom in Asian foodstuffs demand, with profits going to offshore companies.Other commentators have suggested that Australia is selling off its agricultural assets too cheaply, and could lose control over our food supply.

Similar concerns have been raised over the takeover bid by Canada's Saputo for Warrnambool Butter and Cheese Factory (ASX: WCB). Saputo appears to be in the box seat holding 4.8% of Warrnambool, but faces serious competition from dairy company Bega Cheese (ASX: BGA) and cooperative Murray Goulburn. All three have submitted bids for Warrnambool, but Saputo holds the highest bid for the dairy company at $9.20 a share, if more than 50% of Warrnambool shareholders accept the bid.

Foolish takeaway

It's still unclear whether ADM will receive approval for its takeover of Graincorp. Investors appear sceptical that it will go ahead with shares trading at $11.76, while ADM's bid totals $13.20, including cash and dividends. With a high risk of the treasurer rejecting the deal, Graincorp's share price could fall substantially from here.

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