Following Archer-Daniels-Midlands Co. (ADM)'s bid on GrainCorp Monday, its shares have seen a rise of nearly 40 percent.
GrainCorp is the only remaining, and the largest grain handler in Australia, after the government de-regulated the export of wheat. ADM valued the company at $2.7 billion (US$2.8billion). A bidding war is expected over the company's shares.
Initially, the company's shares rose to 43.4 percent, but have now come to sit at 39 percent.
The main reason for the rise is believed to be Australia's position as a major food exporter to several Asian countries and good agricultural policies.
"The offer price isn't high enough," Belinda Moore, an analyst at RBS Morgans Ltd. in Brisbane, said today in an emailed note to the Bloomberg Businessweek."Grain Corp is now clearly in play and a bidding war could emerge. We wouldn't rule out another party bidding for the company given the scale and strategic nature of its assets."
"Just given the strategic nature of its assets and the fact that it's the last remaining significant grain company capable of being taken over," she said. "Obviously our position as the food bowl or gateway into Asia would be very attractive to an ADM, which is obviously looking to diversify via geography, she added to the ABC News.
In a statement, GrainCorp said that it is currently reviewing the offer from ADM. Incidentally, ADM already owns 14.9 percent of the company. The offer is subject to due diligence, exclusivity and approval by ADM's board, GrainCorp added.
According to the New York Times, other bidders include Cargill, Bunge, Chinese company Bright Foods and Louis Dreyfus of France. The Businessweek lists Wilmar International Ltd, COFCO Hong Kong Ltd and China Foods Ltd as a few other bidders.
GrainCorp operates seven of the eight bulk grain elevators in eastern Australia. The elevators handle as much as 60 percent of eastern Australia's wheat, barley, canola, chickpea and sorghum crops. Further, it has about 22 million tons of storage at about 280 inland grain handling sites, the company says, reports NYT. Moreover, GrainCorp earned most of its revenue from Asia, which is only likely to rise in the future.
GrainCorp's profit will rise 26 percent to $217 million (US$223 million) by March 2013, according to the average of seven analysts' estimates compiled by Bloomberg.
