Moody's lowers outlook on ADM

Moody's lowers outlook on Archers Daniels Midland due to acquisition risks

Associated Press

NEW YORK (AP) -- Moody's Investors Service lowered its outlook on Archer Daniels Midland Co. Wednesday, citing risk tied to its potential acquisition of GrainCorp Ltd.

The rating agency lowered its outlook to negative, which means it could lower the ratings on the agribusiness in the near future.

Archer Daniels on Monday increased its buyout offer for Australian grain handler GrainCorp by 4 percent and disclosed that it has already added to its stake in the business. It now owns 19.9 percent of GrainCorp.

The Decatur, Ill.-based company made its first bid for GrainCorp in October at 11.75 Australian dollars ($12.60) and increased that offer to GrainCorp stockholders to 12.20 Australian dollars ($12.72) per share on Monday. That makes the deal worth about $2.33 billion.

Moody's pointed out that to-date, GrainCorp has not responded positively to Archer Daniels. Any acquisition without the approval of the board would be a lengthy process due to Australian regulations. Moody's said it would place ADM's ratings under review for downgrade if it reaches an agreement with GrainCorp on a purchase price or pursues a hostile takeover of the company.

Archer Daniels has not indicated how it will finance the deal.

"As we have indicated previously, a debt-financed acquisition of GrainCorp would be a clear credit negative for ADM," said John Rogers, Senior Vice President at Moody's.

Moody's said the company's credit metrics are already stressed by unusually high crop prices and low volumes due to the US drought. A debt-financed acquisition of this size would be a significant credit negative and likely result in a downgrade of the rating. Nevertheless, the negative outlook reflects uncertainty around the financing and other actions management would take over the following year to reduce the negative impact of the transaction on the combined company's credit metrics.

ADM shares rose 1 cent to $26.72 in afternoon trading.

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