With the scent of improved crops and returns, there’s another example of rural rationalisation outside the farmgate with Graincorp, the largest grain handler on the East Coast, launching a surprise hostile offer for livestock feed maker Ridley Corporation.
Graincorp has bid one share for every nine of Ridley’s, valuing Ridley at $1.39 a share, or 6.9% more than Thursday’s close. RIC shares ended at $1.40 on Friday, up 10c, or 7.6%.
GrainCorp ended 63c weaker at $11.85.
Ridley told shareholders to take no action until the board reviews the offer which seems opportunistic and on the low side to be a knock out first move.
Buying Ridley would give GrainCorp control of Australia’s largest stock feed maker and producer as well as 41 plants in the US and Canada, but earlier last week Ridley revealed plans to rationalise its operations, including the possible sale of its Canadian businesses. Ridley has appointed Gresham and CIBC World Markets to manage the sale of its Canadian company, Ridley Inc.
The combined company would have a market value of more than $1 billion, said GrainCorp. The acquisition will boost earnings with cost savings expected by the second full year of ownership, it said in the statement made with the offer on Friday.
"Ridley’s business mix and stability of earnings will further enhance and diversify GrainCorp’s existing earnings," GrainCorp’s managing director, Mark Irwin, said.
GrainCorp says it already has 19% of Ridley’s issued shares through pre-bid acceptance arrangements.
The combined group will process as much as 2 million metric tonnes of grain a year, or about 20% of eastern Australia’s domestic grain consumption, GrainCorp said.
Ridley said it was "an unsolicited, conditional takeover offer by GrainCorp, and we urge shareholders to take no action until the offer is reviewed in detail by the board".
"Ridley has articulated a decisive strategy to deliver significant returns to shareholders.
"These initiatives include the sale of its 69 per cent-owned Canadian unit Ridley Inc, the realisation of surplus landholdings which have been independently valued in excess of $80 million, and addressing underperforming business units within its AgriProducts division."
Ridley said its board would make a further announcement in response to the takeover offer this week.
Meanwhile Australian Agricultural Co shareholders meet on Wednesday in Brisbane and will no doubt be wanting an update on the decision by its 43% shareholder, Futuris, to abandon the sale of its holding.
Futuris revealed the move around three weeks ago at its AGM in Adelaide and the shares in both companies have been volatile since.
The outlook for beef is on the improve, as is the outlook for the grains industry this winter. But that’s conditional on good winter and spring rains, especially in NSW and in South Australia.
The high value of the Australian dollar has hit Ridley, especially in Canada, where the Canadian dollar has also been strong. That’s probably as much the reason for the sale process being explored than anything. The higher value of the Aussie has also hit returns for Graincorp and Ridley when they have entered the export markets in the past year or so. It’s also been a factor for returns for the beef industry.
The GNC offer is an example of rationalisation in an industry struggling for adequate returns because of external factors: in this case drought. High world grain prices and the prospects of their continuation is probably as much a driver as any other factor.
