US firm makes play for GrainCorp

There has been speculation for some time that GrainCorp (GNC) may be a target for large international agribusinesses, given that it is the last of the big Australian listed grain handlers and an obvious choice for companies trying to gain access to the Asian grain markets.

And when there is a rumour generally there is substance to back it - by last Friday morning, the rumour had firmed to reality as US agribusiness company Archer Daniel Midlands (ADM) purchased a 10 per cent stake in GNC at a 33 per cent premium to the company share price.

On this action, GNC then confirmed it was in discussions with ADM, which would explain the recent share price performance even prior to Friday's jump.

GNC on Monday advised that on Friday afternoon it had received an indicative, non-binding proposal from ADM of $11.75 per share in cash, subject to several conditions including due diligence, exclusivity and approval by the ADM board.

GNC had also been advised by ADM that it had acquired a 14.9 per cent interest in the company through equity derivative contracts.

The GNC board is said to be reviewing the proposal and will decide on whether it is in the best interests of shareholders, but one would think at such a premium it would be difficult to ignore. Unless they suspect that now there's an offer on the table, other bidders on the sideline may be forced to come forward and trump ADM's offer.

With a bullish view on soft commodities, this could be the case. And with the expected consumption growth in China, GNC is ideally situated to leverage off of this (which is also the reason other Australian agribusinesses have already been taken over by the global giants).

At this price the GNC bid is in line with Glencore's recent bid for Viterra. However, after Agrium acquired the Australian Wheat Board (AWB) in 2010 and Viterra took over ABB Grain in 2009, GNC is a rare asset in a strong bargaining position.

One feels there may be more to play out in this story, which will hopefully mean a bigger premium for shareholders. Fingers crossed.

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