October 21, 2012 / 11:31 PM / in 5 years

UPDATE 1-Archer Daniels bids $2.8 bln for Graincorp

* Potential for rival bidders given long list of suitors

* Bid undervalues Graincorp - analysts

SYDNEY, Oct 22 (Reuters) - Archer Daniels Midland has bid A$2.68 billion ($2.77 billion) for Australian rival Graincorp, a 33 percent premium to the last traded share price, as the U.S agriculture giant seeks to push ahead in the global race for grains trading power.

Graincorp, which halted trading in its shares on Friday in anticipation of the takeover offer, said on Monday it was reviewing the A$11.75 a share bid, which is subject to a number of conditions including exclusivity and due diligence.

Analysts tracking Graincorp felt the bid undervalued the firm, based on past deals. With a potentially long list of rival bidders including Cargill, Bright Foods, Bunge, Wilmar and Louis Dreyfus, they expected the board to play hardball.

The bid comes at a time of consolidation in the global grains sector amid intense competition to feed fast-developing countries seeking food security.

Australia is a coveted market as the world’s second-largest wheat exporter with a stable government and policy regime, yet some analysts who know Archer Daniels primarily as the top U.S. corn processor and a major producer of ethanol were surprised.

“Given the strategic value of the GrainCorp assets and this is the last remaining grain company in public ownership, we believe there could be other interested parties such as other grain related companies or an Asian buyer,” Deutsche Bank analyst Mark Wilson said in a research note.

JPMorgan said in a note to clients that Graincorp should be valued at between A$11.88 to A$13.43 a share, based on Viterra’s acquisition of ABB Grain in 2009.

The bid values Graincorp at eight times 2012/13 earnings before interest, taxes, depreciation and amortisation, while past deals in the sector paid more than 9.5 times, analysts said.

Archer Daniels has said it acquired a 14.9 percent stake through equity derivative contracts.

GLOBAL CONSOLIDATION

The bid comes as the four “ABCD” firms that have dominated the global agricultural business for decades -- Archer Daniels, Bunge, Cargill and Louis Dreyfus -- are emerging from a period of dismal earnings amid tough new competitors and volatile markets.

The move is not Archer Daniels’s first signal that it wants to bulk up and push ahead of less acquisitive rivals like Cargill while seeking to fend off eager new challengers such as Glencore and Singapore’s Olam.

Nearly seven months ago Archer Daniels pulled out of the race to buy Canadian grain company Viterra, which was eventually bought by No 1 global commodities trader Glencore in a deal worth C$6.2 billion ($6.2 billion then).

In May, Japan’s Marubeni bought U.S. grain merchant Gavilon, whose owners included billionaire investor George Soros, highlighting the intensifying competition for a foothold in the North American supply chain.

Graincorp is the last available asset with full access to the Australian grain market.

Business has been booming in the sector and Graincorp raised its forecast for 2012 earnings before interest, tax, depreciation and amortisation (EBITDA) to A$385-A$415 million in May after posting stronger-than-expected first-half earnings.

Credit Suisse and Greenhill are advising Graincorp.

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