U.S. agribusiness giant Archer Daniels Midland tightened its grip on GrainCorp, hiking its bid to $2.9 billion and buying more shares, but may need to offer more to win over Australia's last major independent grains handler.
Australian grains, food and agricultural businesses have been snapped up by large global players in recent years, part of a global consolidation amid intense competition to feed fast-developing countries seeking food security.
GrainCorp is the last available independent asset of scale in Australia, the world's second-largest wheat exporter and an attractive market due to stable policies and good links to Asia.
ADM, which is looking to increase its geographical spread, upped its offer by 3.8 percent from A$11.75 per share to A$12.20 per share in cash -- a 40 percent premium to GrainCorp's share price at the time of the initial offer.
The new proposal sent GrainCorp shares up 3 percent to A$12.32, suggesting investors may hold out for a higher offer.
"The current offer should open the way for ADM to engage with Graincorp's board," Dennis Hulme, senior analyst at BBY Ltd, suggesting the bid could be sweetened for shareholders through a special dividend.
"There has been speculation that GrainCorp is seeking over A$13 a share but with no competing bidders and the passage of time that looks less likely. I believe a A$12.50 share offer, which includes a special dividend would be a good outcome for shareholders."
GrainCorp noted the "revised, non-binding and conditional proposal" and said it would advise the market in due course, while again highlighting its portfolio of strategic assets.
GrainCorp operates seven of the eight bulk grain elevators in eastern Australia, handling as much as 60 percent of the region's wheat, barley, canola, chickpea and sorghum crops.
GrainCorp, which took in 12.2 million tonnes of grain last season, rejected ADM's earlier $2.8 billion bid, saying it undervalued the company after a bumper harvest delivered a record annual net profit.
GrainCorp's earnings are forecast to slide as Australia's grains harvest retreats from record levels due to dry weather in key growing areas.
Still, the new offer was below the average acquisition multiple for Australian and global agribusinesses based on forward earnings, said Belinda Moore, an analyst at RBS Morgans.
"We recommend shareholders hold on for a potentially higher offer," Moore said in a note, arguing GrainCorp could be worth up to A$14.33 based on recent transactions.
ADM said the new proposal reflected the value of GrainCorp's business, taking into account its 2012 results, new initiatives and a dividend announced on Nov. 15.
Including that final dividend of 35 cents per share, ADM said its new offer was worth A$12.55 per share.
ADM revealed it had acquired an additional 5 percent of GrainCorp for the new offer price, raising its stake to 19.9 percent - the limit under Australian takeover laws before it must make a bid for the entire company.
"The 19.90 percent stake puts ADM in a good spot. If it can't achieve full control this time, it can wait for a poor harvest year for GrainCorp to mop up the remaining shares," said BBY's Hulme.
The increased shareholding was seen making it difficult for rival bidders to enter the fray.
Among a long list of potential rival bidders identified by analysts are Cargill and Louis Dreyfus -- two of the four "ABCD" firms (ADM, Bunge, Cargill and Louis Dreyfus) that have dominated the global agricultural business for decades.
Other possible bidders include Singapore's Wilmar International, China's Bright Food Group and COFCO.
"We can't rule (other bidders) out - agriculture assets are very valuable around the globe. But this makes it very difficult for anyone to compete," said Michael McCarthy, chief market strategist at CMC Markets.
ADM shares rose 0.3 percent to $26.79 in New York trade on Monday.