Market Matters Blog
Katie Micik DTN Markets Editor

Thursday 11/15/12

Earnings and Ousted Acquisitions

It's been a fairly juicy earnings season for agriculture companies. CHS inked record profits, and in a rare disclosure required by a bond deal, Louis Dreyfus reported that its profits for the first half of the year fell 28% year over year. And then Grain Corp rejected ADM's takeover bid after posting a record yearly profit.

CHS cited strong petroleum refining margins and solid returns on its Country Operations unit as the reason behind the record-setting $1.26 billion earnings reported earlier this month. Here's a previous Market Matters blog on that here:…

Here's an update on what you need to know about the last announcements from Dreyfus and Grain Corp.:

Louis Dreyfus Commodities profit's fell 28% in the first half of 2012 due in part to unfavorable foreign exchange rates that hampered its Brazilian sugar and ethanol unit's profitability. Half of the Brazilian unit's debt is in U.S. dollars yet the business functions using the real, which has weakened 8% against the dollar this year.

Net income in the first six months of the year was $298.1 million compared to $414.8 million during the same period a year earlier. The information was only released because Louis Dreyfu completed a bond placement on the Singapore Exchange and was required to release the financial information, Dow Jones reported.

GrainCorp and ADM's story is more nuanced. Archer Daniels Midland launched a takeover bid for Australia-based grain company GrainCorp in mid-Octber that valued GrainCorp at $11.75 per share, or roughly $2.8 billion. That's roughly 33% more per share than what the company was valued at when ADM made the offer.

But since then, GrainCorp announced its net profits increased 19% from a year prior, boosted by record exports of 10.6 million metric tons. GrainCorp CEO Alison Watkins didn't say much in a call with investors earlier today, saying only that ADM's offer "materially undervalued" the company.

It's easy to see why ADM's interested in buying its largest competitor in Australia. ADM's wheat milling business always needs supply. But yet the move would have left ADM strapped for cash. ADM's first quarter earnings slumped 60% to $182 million, down from $460 million a year ago, with most of the losses from the ethanol business. Several rating companies concerned the deal would increase ADM's debt load placed ADM on a watch list for a potential credit downgrade.

Some analysts out there expect another global grain company to take over GrainCorp, but for now, all ADM has to say is: "We approached GrainCorp's board with a proposal that represented a significant premium to the prevailing GrainCorp share price at the time of our approach. We believe it remains an attractive proposal."

Posted at 3:10PM CST 11/15/12 by Katie Micik
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