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Summa Said Raising Funds to Bid for Global Grain Assets

Bloomberg, 31.10.12

Oct. 31 (Bloomberg) -- Summa Group, Russia's biggest port operator, is raising money for a foreign grain trading acquisition and was considering an offer for GrainCorp Ltd. before Archer-Daniels-Midland Co. made a $2.8 billion takeover bid, according to two people with knowledge of the matter.

The Moscow-based company is seeking to expand its presence in Asia and around the world, and hasn't ruled out a counterbid for Sydney-based GrainCorp, according to a third person, who asked not to be identified before plans are decided.

Summa submitted a formal request to VEB, the Russian development bank where Prime Minister Dmitry Medvedev is supervisory board chairman, to fund a possible acquisition of GrainCorp, said the two people, who declined to be identified because the information is private.

Graincorp's shares are trading 4.3 percent higher than the A$2.68 billion ($2.8 billion), or A$11.75-a-share, offered by ADM, the world's biggest corn processor, on Oct. 22 for the Australian company. Buying GrainCorp, the only major publicly traded grain merchant in Australia, would give the acquirer control of seven of the eight ports that ship grain in bulk from the nation's east coast as well as a substantial malt producer.

"Another Bidder"

"There was always going to be a situation where we might see another bidder emerge," Stan Shamu, a Melbourne-based market strategist for IG Markets, said by phone. "Archer-Daniels will probably have to come in very strongly to get this one over the line, they could be forced to raise their bid."

GrainCorp, which last week said it was reviewing the ADM offer, gained 0.5 percent to A$12.27 at 12:10 p.m. in Sydney, while the key S&P/ASX 200 Index rose 0.6 percent. Angus Trigg, a spokesman for GrainCorp, declined to comment as did Summa's spokesman Dmitry Minenko and VEB's press service in Moscow.

"It would make sense for some Russian grain traders to seek grain origination and consumption channels in other countries," said Dmitry Rylko, general director of the Moscow-based Institute for Agricultural Market Studies.

Russia is targeting Asian customers for its agricultural output as expanding economies to the east outpace growth in Europe. Summa, which last month acquired 50 percent minus one share in United Grain Co. from the Russian government, and VEB plan to build an 8 billion-ruble ($255 million) terminal in the Far East for sales to Asia. Summa hasn't decided on a bid for GrainCorp and is looking at many possible deals, one of the people said.

Bunge, Noble

"We are looking outside because Russia doesn't have a global player in soft commodities markets," Summa Chairman ZiyavudinMagomedov told Rossiya 24 state television Sept. 4. "We have Glencore, Dreyfus, Cargill here, and Russia, which possesses such a powerful resource, doesn't have its own worthy global player."

Companies that may be interested in GrainCorp's assets include Cargill Inc., Louis Dreyfus Commodities BV, Bunge Ltd., Wilmar International Ltd., Olam International Ltd., Noble Group Ltd., COFCO Hong Kong Ltd., China Foods Ltd. and Bright Foods Group, JPMorgan Chase & Co. analyst Stuart Jackson wrote in an Oct. 19 note. Glencore International Plc and Hong Kong-based commodity trading company Noble Group are among companies that have targeted agricultural assets, betting on rising demand from Asia as living standards rise and diets improve.

Last year, GrainCorp's revenue from Asia more than doubled from the previous 12 months, making the region the company's second-biggest sales generator. ADM, which this month said it had boosted its stake in GrainCorp to 14.9 percent, earned 52 percent of its revenue in the U.S. in fiscal 2012, according to data compiled by Bloomberg.

GrainCorp, which traces its roots to 1916 and the Grain Elevators Board of the New South Wales state agriculture department, has seen its revenue surge since Australia's 2006 decision to strip AWB Ltd. of its wheat export monopoly. An inquiry found AWB was among firms that made illegal payments to win contracts from the former Iraq regime of Saddam Hussein under the United Nations' oil-for-food program.

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