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ADM Goes Over the Rainbow to OZ

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On Friday, Archer Daniels Midland (NYSE: ADM  ) ,¬†once known as "supermarket to the world," went on a bit of a global shopping expedition of its own. Laying out $278 million, the agricultural giant bought a 10% stake in Australian grain processor "GrainCorp."

The purchase price implies a total company value of $2.8 billion. Probably more than that, actually, as any purchaser of a controlling stake in GrainCorp would likely have to pay a premium for control. Even without that premium, though, GrainCorp shareholders are receiving a 33% boost to their market cap today.

It may be worth it, too. This year's summer drought savaged crops across the U.S. midwest, highlighting the vulnerability of any company relying too heavily on just one country for its crops. With Australia being the second-largest wheat exporter in the world -- and conveniently located next-door to wheat eaters in Japan, China, and Indonesia -- it's a logical choice for a company like ADM to try and add some global diversity to its product portfolio.

Acquiring the rest of GrainCorp could prove tricky, though. ADM can acquire up to 15% of the company's shares pretty easily -- but after that, any further purchases, or outright acquisition, will require preapproval from Australia's Foreign Investment Review Board.

Fool contributor Rich Smith has no positions in the stocks mentioned above. The Motley Fool owns shares of Archer Daniels Midland Company. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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10/21/2016 4:00 PM
ADM $42.32 Up +0.14 +0.33%
Archer Daniels Mid… CAPS Rating: ***