Australia's GrainCorp knocked back a $2.8 billion takeover offer from Archer Daniel Midland Co on Thursday, saying the bid undervalued the grains handler after a bumper harvest delivered a record annual net profit.
The U.S. agricultural giant's bid comes at a time of dramatic consolidation in the global grains sector amid intense competition to feed fast-developing countries seeking food security.
GrainCorp is the last available independent asset of scale in Australia, which is an attractive market due to a stable policy regime and good links to Asia, leading to speculation of a counterbid.
The Australian grains handler, which sources say is pressing for an offer up to 15 to 20 percent higher from ADM, highlighted a 19 percent boost in profits and lifted its long-term earnings forecasts.
"Our business is ideally positioned to benefit from the growth in global demand for grain and processed grains, with global trade in our core grains expected to double by 2050," Chief Executive Officer Alison Watkins said in a statement.
ADM countered in a statement that it believed its offer "remains an attractive proposal."
Paul Xiradis, chief executive at fund manager Ausbil Dexia, which owns shares in GrainCorp, said a higher bid from ADM was likely, noting a 4 percent premium in the share price to the bid offer.
Another Sydney-based equity analyst said GrainCorp was such an attractive asset that it was too early to rule out a rival bid and felt the process could take six months to play out.
"It has such a good position on the Australian east coast, one of the few wheat exporting regions in the world, and you aren't going to replicate those assets," said the analyst, who declined to be named as he was not authorised to speak to the media.
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.
The analyst singled out Cargill and Louis Dreyfus as potential bidders -- 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.
Sources have also said Russian investment and trading group Summa had sought funding for a possible bid.
However, one source familiar with the bid approach said an offer did not look likely from companies in Japan or China.
"The Chinese can afford to pay, but for them it's too domestic to get excited and none of the grain goes back into China," the source added.
GrainCorp is currently at the peak of its earnings cycle, buoyed by a strong harvest and record tonnage.
Its adjusted net profit of A$205 million ($214 million) for the year ended September 30, which excludes one-off items, was in line with analyst expectations of A$206 million, according to Thomson Reuters I/B/E/S data.
The company announced a total full-year dividend of 65 cents per share, up from 55 cents a year ago.
GrainCorp CEO Watkins said it had advised ADM that its offer, made last month, "materially undervalues GrainCorp."
GrainCorp shares ended almost flat, up just 0.2 percent at A$12.20, or about a 4 percent premium to ADM's A$11.75 offer price.
Two other sources familiar with the ADM approach have told Reuters that GrainCorp is holding out for an offer 15 to 20 percent higher than ADM's October bid.
Such a sweetened offer for Graincorp would raise the bid closer to A$14 a share and put it right at the top end of past deals that were valued at 9 to 10 times earnings before interest, depreciation and amortization (EBITDA). The current offer values GrainCorp at about 8 times EBITDA.
However, analysts expect earnings to fall to A$177.8 million in 2012/13 and to A$142.7 million the next year as harvest sizes retreat from last season's record.
"The value really depends on the 2013 outlook, and it hasn't been the best finish," said Jonathan Snape, an analyst at Bell Porter. "If you look at the earnings in 2012, GrainCorp are benefiting from two years of record crops and I don't believe that is the best basis for a multiple-based valuation."
Seeking to counter concerns over future earnings, GrainCorp said it was focusing on an international grain supply chain and that it was confident of achieving an additional A$110 million in underlying EBITDA by the end of 2016.