DECATUR, ILLINOIS, U.S. — Amid reports that Australian officials are not likely to approve Archer Daniels Midland Co.’s (ADM) acquisition of GrainCorp, ADM announced on Nov. 26 several commitments that sweeten the deal.
Key commitments by ADM include a A$200 million investment in Australian infrastructure with a specific emphasis on rail projects; price caps on grain handling charges at silos and ports; a commitment to grain infrastructure access for growers and third parties; a commitment to “open access” regime for port services; a grower and community advisory board with representation from New South Wales, Victoria and Queensland, as well as regular public grower consultation; and support for expanded grain stocks information arrangements.
The commitments described would be put into effect upon the closing of ADM’s proposed acquisition of GrainCorp.
Several media outlets reported on Nov. 14 that Australian Prime Minister Tony Abbott will veto the multi-billion dollar takeover of GrainCorp. Australian Treasurer Joe Hockey, who is to decide on the deal by Dec. 17, told the media outlets that the decision is his alone.
ADM is paying A$12.20 a share for GrainCorp, allowing for the target to also distribute shareholders a A$1.00 per share dividend out of current and retained earnings before the deal close, ADM has said.
“We have had substantive discussions with growers, policymakers and other stakeholders, and we’ve been committed to finding common ground and developing solutions that address issues and opportunities that have been raised,” said Ian Pinner, president, ADM Grain. “Taking into account the feedback we received, we are committing to a further package of investments and initiatives to help ensure that Australian agriculture is able to serve a key role in meeting growing global demand.
“These commitments are in addition to the existing capital expenditure and other commitments we have set out in our Bidder’s Statement, which included a A$50 million enhancement to GrainCorp’s planned capital expenditure over the next few years. The additional capital investment that ADM will bring to GrainCorp represents a 100% increase in GrainCorp’s original A$250 million capital expenditure budget prior to ADM’s proposal. Taken together, the capital investments ADM has committed to support or make for the GrainCorp business total A$500 million.”
GrainCorp Chairman Don Taylor said ADM’s commitment is a compelling opportunity for the grain industry in eastern Australia. He said the commitment is to be welcomed and will enable major strides on rail related priorities.
“Clearly new investment of the scale outlined by ADM today will benefit growers and our industry by improving the efficiency and international competitiveness of our network,” he said. “The huge excess of capacity and increased intensity of competition both up country and at the port means any owner of our infrastructure is strongly incentivized to provide open access in any case; however it is pleasing to see that ADM has moved to address any lingering uncertainty on this issue.”
ADM is making commitments in the areas of:
• Pricing and cost: Increases in GrainCorp’s overall grain handling and storage charges will be capped to inflation for a period of three years. In the case of silo handling charges, this will be measured by CPI (consumer price index); and in the case of port-based handling charges, this will be measured by AWOTE (average weekly ordinary time earnings).
• Access and competition: GrainCorp’s port services will be operated in accordance with the current “open access” regime and the mandatory industry code of conduct when finished. Current access arrangements will be continued for GrainCorp’s upcountry silos. This means: continuing to provide, to GrainCorp and third parties, access to GrainCorp’s operational upcountry storage and transportation services; continuing to make available, to third party grain marketers, available storage capacity at GrainCorp’s operational receival sites; and continuing to ensure that prices for grain for delivery at all GrainCorp receival sites, which are operational at the relevant time, remain available to growers.
• Investment in grain handling and infrastructure: A$50 million of new investment will be committed to strategic expenditure in the GrainCorp business in the next few years. This is over and above the A$250 million program of investment announced by GrainCorp in November 2012. Average annual expenditure on maintenance and improvement of GrainCorp’s existing portfolio of assets of between A$40 million and A$60 million. An additional A$200 million of capital expenditure will be exclusively committed to GrainCorp’s Storage and Logistics business, and its associated infrastructure, over the next three to five years.
The priority of this capital expenditure will be transformative rail projects that improve supply chain efficiencies, specifically in areas like: upgrading the silo network to efficiently handle unit trains; work with rail providers to invest in new generation wagons; enhancing silo and grain receival site efficiencies; working with governments to secure the future of branch lines; constructing new grain handling and storage locations; a proposal to government on the establishment of a rail infrastructure fund.
• Access to stocks information: GrainCorp will commit to sign up to an industry-agreed protocol for reporting wheat stocks information held at an aggregate level of feed or milling grades by port zone. GrainCorp will play an industry leadership role in encouraging other participants to do likewise.
• Management and engagement: The headquarters of GrainCorp will remain in Sydney and its CEO will be based in Sydney. A grain marketing team will be maintained in Australia. A Grower and Community Advisory Board will be established, which will include at least four growers, at least one person with a strong connection to regional/rural community organizations, and senior GrainCorp management. A bi-annual consultation forum with grower organizations will also be established.
“In the competitive global grains market, it makes sense to operate the most efficient supply chain and maximize utilization of every location and asset,” Pinner added. “These investments and commitments—developed following extensive input from Australian stakeholders—will help ensure the GrainCorp network remains an attractive option for growers and third-party grain traders, and also remains a competitive source for global grain buyers.”
GrainCorp said its board continues to believe that ADM’s offer is in the best interests of GrainCorp shareholders and has recommended that shareholders accept it, subject to there being no superior proposal, the independent expert not determining that the offer has ceased to be fair and reasonable and the regulatory approval conditions to the offer being satisfied or waived by Dec. 31.
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