Australia’s GrainCorp and U.S. suitor Archer Daniels Midland (ADM) are hunkering down for a long wait for Chinese regulatory approval after agreeing to a A$3 billion (US$3.1 billion) takeover deal Friday.
In a sign of China’s growing scrutiny of global M+A deals, GrainCorp and ADM have tailored the deal to include an extra payment for shareholders from October to reflect an expected delay in approval from China’s Ministry of Commerce.
Chinese approvals “tend to drag on longer than we would normally expect in the marketplace,” chairman Don Taylor told reporters, adding he expected the deal to close this year, but acknowledging it could take up to eight months.
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GrainCorp’s board, which rejected two earlier offers from ADM during a six-month courtship, backed a revised A$13.20 a share deal that included A$1 a share in dividends, ceding control of Australia’s largest independent grains handler.
The takeover is the latest move in the rapid consolidation of the global grains sector amid intense competition to feed fast-developing countries, and boosts ADM’s international presence.
The main Canadian assets at stake in this deal are those of Canada Malting, including malt plants at Calgary, Montreal and Thunder Bay, plus 10 barley elevators in the three Prairie provinces.
The Calgary company became part of GrainCorp through the latter firm’s 2009 takeover of United Malt Holdings (UMH), now named GrainCorp Malt.
Deal delays
Recent commodity takeovers have faced delays and tough conditions from Chinese regulators, underscoring Beijing’s anxiety over food security.
China took several months to approve Glencore International’s C$6 billion purchase of Canadian grain handler Viterra, and this week imposed stiff conditions on Japanese trading house Marubeni’s US$5.6 billion purchase of U.S. grain merchant Gavilon in a deal that was held up for months.
GrainCorp appeared not to expect punishing conditions to be imposed on the deal with ADM as it had agreed in advance of regulatory approval, said Rebecca Maslen-Stannage, a mergers and acquisition lawyer at Herbert Smith Freehills in Sydney.
However, the inclusion of an extra dividend of 3.5 cents per share a month from October if regulatory approvals lagged beyond the start of that month anticipated the possibility of delays.
“Target companies have been looking very hard at what protection they can get from both the time it takes for approval and the risk of conditionality,” Maslen-Stannage said.
“This addresses the time element in a way we haven’t seen previously,” she added.
The world’s biggest wheat producer and consumer, China is increasingly looking to the import market to fill a domestic shortfall in the supply of high-quality grains and to build stockpiles.
China’s wheat imports are expected to climb to 3.2 million tonnes in the year to June, 2013, compared with 2.9 million tonnes a year ago and 927,000 tonnes in 2010-11, according to the U.S. Department of Agriculture.
ADM supplies 12-17 per cent of China’s total soybean imports, according to estimates by traders, and has a stake in a soybean processing business owned by Wilmar International. It also supplies corn and other food products.
GrainCorp has an edible oils facility in China.
Malting
ADM — one of the four “ABCD” firms that have dominated the global agricultural business for decades — is more U.S.-focused than rivals Cargill, Bunge and Louis Dreyfus.
The U.S. giant was attracted to GrainCorp’s dominant position on Australia’s east coast, where it operates seven of the eight bulk grain elevators, handling up to 60 per cent of the region’s wheat, barley, canola, chickpea and sorghum crops.
The deal makes ADM a “little more rounded on the world front to line themselves up better” with rivals Bunge and Cargill, said Jason Britt, president of Central States Commodities in Kansas City.
“Not only did GrainCorp get an attractive takeover price, but shareholders are essentially being paid to hang around until regulatory approval has been granted,” said Belinda Moore, senior analyst at RBS Morgans.
— Jane Wardell and Colin Packham write for Reuters from Sydney, Australia.
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Australia’s GrainCorp rejects another ADM offer, Dec. 14, 2012
ADM to shut Medicine Hat flour mill, Feb. 15, 2013
