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World food demand is making Aussie producers takeover targets


With a number of the big names in food production under takeover offers, and foreign conglomerates increasing their presence in Australia, you might wonder what else is takeover target now. For investors, this is a time to keep up with the players and takeovers, and plan your stock buys appropriately.

Australian Agricultural Company (ASX: AAC) is a $600 million beef and agricultural products producer with cattle stations across Queensland and the Northern Territory. Its processing operations are in Darwin for easy shipment overseas to such countries as Indonesia and Japan.

Just recently there were news reports about a major shareholder, billionaire Joe Lewis, slowly increasing his shareholding up to the 19.9% mark — above that he would have to make a formal takeover offer.

Its share price hasn’t really reacted strongly to this talk, still trading within a $1.02-1.18 range as it has since April this year. It had a $46.4 million loss in net profit after tax (NPAT) in 2013, which followed a $1.6 million loss in 2012. Its per share book value and net tangible assets are both at $1.90, almost 70% more than the share price.

The US food giant Archer Daniels Midland (NYSE: ADM) is presently in the midst of attempting a takeover of Graincorp (ASX: GNC), a $2.8 billion company and the largest in the agricultural industry listed on the ASX. It has taken a shareholding just under the 20% threshold, and approval has been given by the ACCC for the takeover to go ahead.

There is still political debate on whether such an important facet of Australian agriculture should fall under foreign control. A ruling is planned to be made by Treasurer Joe Hockey on 17 December. Graincorp had a good 2013, raising its NPAT from $166.3 million to $200.1 million. Its share price jumped from about $9 to $12 back in Oct 2012 when the takeover bid was made, and closed at $12.34 on 29 Oct.

As reported on 30 September, Warrnambool Cheese (ASX: WCB) is a takeover target, and now has up to three suitors vying for its control. Major shareholders Murray Goulburn and Bega Cheese (ASX: BGA) have both made offers, and the Canadian dairy producer Saputo joined the fray just after Bega announced the first offer.

The most recent development in this story is that Lion, the food and beverage of Japan’s Kirin Holdings, has increased its shareholding, not so much to make its own takeover offer, but to increase its influence no matter what other company ends up with control of the company. It needs to secure its supplies for its own products, and if it acted as a shareholder block with Murray Goulburn and Bega Cheese against Saputo’s bid, altogether they would have about 44% control.

Warrnambool Cheese’s share price has jumped 95% from $4.51 to $8.80 since the first takeover bid was announced on 12 September.

Foolish takeaway

The world’s demand of high quality food, both meat and produce, has made Australia the centre of attention for global players to take up positions with foresight into what the world will be like over the next two or three decades.

Asian markets are growing, and their tastes and foods are becoming more westernised, so the simple staples of meat, grain and milk have become prized commodities. You can see how these will be even more valuable in the future, so while you are out grocery shopping, think about how your stock picks can give you an enduring income in this industry.

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Motley Fool contributor Darryl Daté-Shappard does not own shares in any company mentioned. 

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