December 19, 2012
Ggraincorp directors and management are bracing for what could be a prickly afternoon on Thursday with some of its shareholders today as the big agribusiness dodges flak for not being more open to takeover talks. GrainCorp last week told US-based commodity trading and processing giant Archer Daniels Midland (ADM) that the multi-national’s latest bid to woo support for a takeover – a share offer of $12.20 – still “materially undervalued” the company. The December 4 offer followed an initial non-binding proposal from ADM in October pricing GrainCorp’s shares at $11.75 each, while at the same time announcing it had bought a 15 per cent stake in the business. With ADM’s shareholding now up to just under a fifth of the company’s stock, Thursday’s annual general meeting in Sydney could generate some forthright questions to chairman Don Taylor and managing director Alison Watkins. Early this week ADM supporter Ellerston Capital blasted GrainCorp bosses for refusing to engage with its potential bidder, saying shareholders should have a more immediate say on such takeover offers. Ellerston, the Packer family’s investment fund business, built its stake in GrainCorp to about 6.5pc this year after a four-year stint on the share register, then sold to give ADM a foothold in the grain marketing, handling and processing business. Ellerston’s investment manager Ashok Jacob claimed companies like GrainCorp, Billabong and Orica were failing shareholders by rejecting approaches from suitors even when bids were at a substantial premium. Mr Jacob’s views may be shared by some stakeholders, including some short term hedge fund investors holding an estimated 15pc of GrainCorp stock, but not the company’s broader investor base. The mood among retail investors and many fund managers has generally backed management’s longer term earnings strategy and its cold shoulder to what the company sees as ADMs opportunistic $2.8 billion offer. GrainCorp directors declared last week’s offer did not change their view about ADM’s proposal being pitched too low to seriously represent shareholders’ best interests. However the board was happy to be “constructive in any dealings in relation to proposals that have the potential to be in the best interests of shareholders”. GrainCorp considered it held a unique portfolio of integrated, strategic assets and was confident in its outlook and strategy. However, agribusiness analyst with investment management and financial services group Octa Phillip, Paul Jensz, said despite the company’s expectation of being worth more he doubted GrainCorp would be offered a higher price by ADM or a new bidder would emerge. “GrainCorp seems to expect it’s worth a fair bit more, but as a risk reward for investing in agri stocks I think you’d probably be better taking your money and putting it into something that’s not as expensive,” he said. “I think we’re at a phase where ADM may just wait.” Mr Jensz said ADM, which was carrying about 50pc debt to equity after a drought-squeezed trading year back in the US, may simply opt to wait for its GrainCorp investment to generate the sort of earnings being promised by management. Illinois-based ADM is under some pressure from its bankers, with credit-rating groups Moody’s, Fitch Ratings and Standard and Poor’s all placing it on negative credit-watch because of its potential $2.8b outlay for GrainCorp. Alternatively ADM may expect the share price to slip back to a level that would make shareholders more accepting of a full-blown takeover bid.