While the proposed takeover of Graincorp Ltd (ASX: GNC) by the US agribusiness giant Archer Daniels Midland Company (NYSE: ADM) was blocked by the Liberal government in late November, another Australian grain producer has been bought out, to become fully owned by Sumitomo Corporation.
The Japanese company was a 50-50 joint venture partner with Emerald Agribusiness Group for Emerald Grain, a privately held integrated grains’ handler. Its total revenue in 2013 was $1.3 billion with NPAT of $16 million. It handles about 4.5 million tonnes of grain annually, shipping 70% overseas.
The takeover offer for its JV partner will not meet any opposition from the Foreign Investment Review Board and the Australian Competition and Consumer Commission after initial consultation.
Sumitomo wants to become a bigger player in the global grain market and this will speed up the pace for it, according to the Keizai Shinbun, the Japanese financial newspaper.
Currently, Emerald Grain is one of the five largest handlers in Australia, along with Glencore, Graincorp, Cargill and CBH. Altogether it holds 85% of the domestic market.
Previously I wrote about how Australian food and dairy producers will become attractive for overseas investors and businesses because of the high quality of the product and the increase in international demand for dairy, meat, and grains. This then could be a good source of investing ideas.
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ASX-listed companies can benefit from this increased interest even if they don’t receive takeover offers. Graincorp may not get another takeover bid soon, but agribusiness companies and institutional investors can increase their shareholdings, potentially tightening control of the share register and giving its share price a boost.
Bega Cheese Ltd (ASX: BGA) may have lost the takeover battle for Warnambool Cheese and Butter Factory Co. (ASX: WCB), but it in itself is a well-known dairy products brand producer with operating revenue almost double that of Warnambool Cheese.
It listed in 2011, and since January 2013 the share price has risen from around $2 to $4.90. NPAT climbed 19.6% in 2013 to $25.4 million and it has a manageable net gearing of 33%.
The Australian Agricultural Company Ltd (ASX: AAC) is a major cattle producer that wants to expand its beef exports, both in processed meats and live exports. Previously its live export business was adversely affected by the sudden shutdown of shipments by the previous Labor government over concerns about the treatment of cattle in foreign abattoirs. That restriction was lifted, but ongoing drought conditions are now causing cattle to be underdeveloped and underweight, and selling for less in the market.
Food security for nations will become a bigger theme in the future for investment and business development. Resource rich Australia also has many natural food resources, so while we enjoy them everyday on our dinner table, savvy investors could have a good harvest in food and beverage companies.
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