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Rating Action:

Moody's places ADM under review for downgrade due to potential acquisition of GrainCorp

Global Credit Research - 30 Apr 2013

Approximately $6.4 billion of rated debt

New York, April 30, 2013 -- Moody's Investors Service placed the A2 and Prime-1 ratings of Archer Daniels Midland Company (ADM) under review for downgrade following the announcement that it had reached an agreement with GrainCorp Limited (GCL) to potentially acquire the remaining shares of the company for A$12.20 per share, for a total value of A$3.4 billion including GrainCorp's net debt and the 19.8% of the shares that ADM already owns. ADM will make a cash offer to acquire GrainCorp shares subject to the satisfactory completion of a short due diligence period and announce whether it will proceed with the offer on May 1st, prior to the end of its first-quarter earnings call. This transaction is subject to regulatory approval and minimum acceptances of 50.1 percent of all GrainCorp's shares.

"ADM intends to acquire GrainCorp to improve its position in Asia and accelerate the globalization of its operations" stated John Rogers, Senior Vice President at Moody's. "Given its elevated capital spending and high crop prices, ADM's ability to generate free cash flow is less certain thereby making the financing of this transaction more important."

Ratings placed under review for downgrade:

Archer Daniels Midland Company

Senior unsecured notes and debentures at A2

Senior unsecured shelf at (P)A2

Rating for commercial paper at Prime-1

Revenue bonds supported by ADM at A2/Prime-1

RATINGS RATIONALE

The review of ADM's ratings will focus on the final cost of the proposed transaction, the financing for the transaction, the estimated synergies and potential asset sales required to secure regulatory approval, if any. Additionally, Moody's will examine the ability of the combined company to generate free cash flow and return credit metrics to levels commensurate with the rating within 18-24 months. Any downgrade of ADM's ratings is likely to be limited to one notch. As of year-end 2012, ADM's credit metrics were supportive, but on the weak side, of the A2 rating with Net Debt/EBITDA of 1.9x and Retained Cash Flow/Net Debt of 28%. However, Moody's believes that ADM's credit metrics should be a little weaker than normal given high crop prices and lower than normal Ag Services volumes due to last year's drought in North America. Pro forma for the acquisition, assuming the transaction is entirely debt financed, Net Debt/EBITDA would weaken to 2.4x stressing the current A2 rating in the absence of other actions to quickly return metrics to more reasonable levels. The aforementioned metrics include Moody's standard adjustments as well as adjustments specific to Commodity Merchandising and Processing companies. The most current financial statements for GrainCorp are dated September 30, 2012.

Upon satisfactory completion of its due diligence, ADM will file a formal bid for GrainCorp with the Australian Securities and Investment Commission and GrainCorp's board has agreed to support ADM's offer providing another bidder with a higher offer does not emerge. Furthermore, as part of the agreement GrainCorp will pay a A$1 dividend per share (approximately A$230 million) to its shareholders prior to the acquisition. If the regulatory approval process delays the closing of the transaction past October 1, 2013, GrainCorp will have the right to pay additional dividends to its shareholders of A$0.035 cents (approximately A$8 million) per share per month.

The principal methodology used in this rating was Global Commodity Merchandising & Processing Companies published in December 2011. Please see the Credit Policy page on www.moodys.com for a copy of these methodologies.

Decatur, IL based Archer-Daniels-Midland Company (ADM) is a global leader in agribusiness engaged in acquiring, storing, transporting, merchandising and processing agricultural commodities in over 140 countries. ADM operates through four business segments: Oilseeds Processing, Corn Processing, Agricultural Services, and Other (mainly financial services). Revenues for the full year 2012 were over $90 billion.

REGULATORY DISCLOSURES

For ratings issued on a program, series or category/class of debt, this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the rating action on the support provider and in relation to each particular rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this rating action, and whose ratings may change as a result of this rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

John P Rogers
Senior Vice President
Corporate Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Steven Wood
MD - Corporate Finance
Corporate Finance Group
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Moody's places ADM under review for downgrade due to potential acquisition of GrainCorp
No Related Data.

 

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