--Archer Daniels Midland confirms plans to acquire Australia's
GrainCorp
--CEO says ADM has financial flexibility to fund deal
--First-quarter earnings fall 33% as U.S. drought limits grain
supplies
(Updates with executive comments, details on the GrainCorp deal
and information on possible bribery fines.)
By Ian Berry and Kristin Jones
Archer Daniels Midland Co. (ADM) confirmed plans to acquire
Australia's largest grain company Wednesday, while reporting
first-quarter earnings fell 33% due to a severe drought in the U.S.
during 2012.
ADM said it had completed due diligence on GrainCorp Ltd.
(GNC.AU) and would proceed with a sweetened $3.5 billion deal first
announced last week.
Buying GrainCorp would give the U.S. grain trader and processor
a crucial foothold for exporting grain to China and the rest of
Asia, a growth engine in the recent global commodities boom.
GrainCorp "provides an excellent platform to serve growing
global demand, particularly in the Middle East, Africa and Asia,"
ADM Chief Executive Patricia Woertz said during a conference call
following the release of first-quarter earnings.
ADM had pursued GrainCorp for six months, and last week said
GrainCorp's board of directors had agreed to approve the deal. The
company had rejected two previous bids.
ADM, based in Decatur, Ill. said Wednesday it will fund the
acquisition through a combination of operating cash flow and debt,
and expects the deal to add to earnings in the first year.
Moody's Investors Service on Tuesday placed ADM on review for a
downgrade on the proposed deal. Ms. Woertz said Wednesday "we have
excellent financial flexibility to fund this investment." She added
the company expects to realize annual gains of $51 million to $72
million based on synergies between the two companies.
The deal is still subject to conditions, including ADM receiving
a minimum acceptance of 50.1% of GrainCorp shares. ADM, one of the
world's largest grain handlers, currently owns 20% of GrainCorp's
shares.
As part of the agreement, GrainCorp will pay its shareholders
dividends of 1 Australian dollar a share (U.S. $1.03), and an
additional A3.5 cents a share for each full month between Oct. 1
and the satisfaction or waiver of the regulatory conditions,
subject to GrainCorp being profitable over that period.
ADM also announced Wednesday it was setting aside $25 million to
pay potential fines as part of a previously disclosed bribery
investigation. It disclosed to the U.S. government an internal
investigation into possible violations of the U.S. Foreign Corrupt
Practices Act in 2009, and in 2011 publicly announced the
investigation. In November, the company said it was in negotiations
with the Department of Justice and Securities and Exchange
Commission to resolve the matter.
ADM's first-quarter earnings suffered from tight U.S. supplies
stemming from last year's drought, the worst in decades in the U.S.
The tight supplies weighed on its agricultural services segment,
which includes grain storage and exporting, and on its oilseeds
processing segment.
Profit from ADM's agricultural-services segment declined 42%,
while the oilseeds-processing segment reported an income decline of
42%. The pressure on agricultural services will persist until
autumn in the U.S., Chief Operating Officer Juan Luciano said.
"Until we have a new crop, we will struggle with a lack of
volume," he said.
Ms. Woertz added, however, that the ethanol business improved as
declining inventories supported overall margins. Operating profit
in ADM's corn-processing segment rose 15%.
Overall for the latest quarter, Archer Daniels reported a profit
of $269 million, or 41 cents a share, down from $399 million, or 60
cents a share, a year earlier. Excluding a $25 million provision
expected in relation to a foreign bribery investigation, earnings
were down at 48 cents a share from 78 cents. Revenue increased 2.7%
to $21.73 billion.
Analysts polled by Thomson Reuters were recently projecting
per-share earnings of 51 cents a share on revenue of $21.33
billion.
Gross margin narrowed to 3.5% from 4.8%.
Shares edged down 0.2% after hours to $33.50. Through the close,
the stock was up 23% since the start of the year.
Write to Ian Berry at ian.berry@dowjones.com and Kristin Jones
at kristin.jones@dowjones.com
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