Moody's considers downgrading ADM following GrainCorp agreement

Tue Apr 30, 2013 6:28pm EDT
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By Tom Polansek

CHICAGO, April 30 (Reuters) - Moody's Investors Service on Tuesday placed Archer Daniels Midland Co under review for a ratings downgrade because of the agribusiness company's plan to buy Australian grain handler GrainCorp Ltd for A$3.0 billion ($3.1 billion).

GrainCorp's board, which rejected two earlier offers from ADM during a six-month courtship, last week backed a revised A$13.20 a share deal that included A$1.00 a share in dividends.

Moody's review of ADM will focus on the final cost of the proposed transaction, the financing for the transaction, "estimated synergies" and any potential asset sales that may be required to secure regulatory approval, according to the ratings agency.

High crop prices and capital spending by ADM mean the company's "ability to generate free cash flow is less certain, thereby making the financing of this transaction more important," said John Rogers, senior vice president for Moody's.

ADM declined to comment on the move by Moody's.

ADM is one of four large players known as the "ABCD" companies that dominate the flow of agricultural goods around the world. The others are Bunge Ltd, Cargill Inc and Louis Dreyfus Corp.

Moody's in December lowered its outlook for ADM to negative from stable after the company raised an earlier bid for GrainCorp. The ratings firm warned at the time it would place ADM's ratings under review for a downgrade if ADM reached an agreement on a purchase price.

ADM's A2 and Prime-1 ratings are under review and any downgrade is likely to be limited to one notch, according to Moody's.   Continued...