Following the completion of due diligence, Archer Daniels Midland Co. on May 1 said it will offer A$12.20 ($12.54) per share to acquire GrainCorp Ltd., for a total transaction value of approximately A$3.4 billion ($3.5 billion).
Patricia Woertz, chairman and chief executive officer of ADM, said during a May 1 conference call to discuss first-quarter financial results that the acquisition “fits well with our growth strategy,” “meets our financial objectives,” and “provides an excellent platform to serve growing global demand, particularly in the Middle East, Africa and Asia.”
If the offer is completed successfully, GrainCorp shareholders will receive A$13.20 per share, comprising a cash payment of A$12.20 per share under the ADM offer and dividends totaling $1 per share. GrainCorp’s board has indicated it will support the agreement as long as there is not another offer that is deemed superior; an independent expert determines that ADM’s offer is fair and reasonable; and that regulatory conditions are met or waived by Dec. 31, 2013.
Ms. Woertz said the weighted transaction cost, excluding synergies, represents a multiple of about 8.5 times the 2013 consensus EBITDA for GrainCorp. She said the multiple compares favorably with recent merger and acquisition transactions in the global ag space.
The acquisition is expected to be earnings accretive to ADM in the first full year, Ms. Woertz said, with run rate synergies of A$50 million to A$70 million by the end of year two.
“Once we close the transaction and have full insight into the business I am confident there will be additional upside opportunities,” Ms. Woertz said. “We fully expect this investment to meet our return objectives as the synergies are realized. We think this transaction is a great win-win for both ADM and GrainCorp shareholders.”
Ms. Woertz said ADM expects to be able to “easily finance this transaction” behind the continued generation of operating cash flows up to closing, and, depending on the U.S. harvest and its impact on crop prices, working capital in the second half of the year.
“As the closing approaches, we’ll make a final decision on how we’ll balance funding between operating cash flows and some sort of debt,” she said.
