Shares of Bunge (BG) are on the rise following media reports saying Archer Daniels Midland (ADM) had approached the company with a takeover offer. Commenting on the news, Citi analyst David Driscoll told investors that $85-$100 per share is an “appropriate” takeover price for Archer Daniels Midland to pay for Bunge. Noting that Glencore (GLNCY) was also said to have shown interest, his peer at Baird argued that it could be positive catalyst for Archer Daniels even if they are not the winning bidder as the takeover would provide a value benchmark. SPECULATION SHOULD DRIVE SHARES HIGHER: In a research note this morning, Baird analyst Ben Kallo noted that Archer Daniels is the second possible suitor interested in Bunge, with Glencore having been rumored previously. With multiple bidders now reportedly interested, the analyst argued that reignited takeover chatter could contribute to near-term share appreciation. Additionally, Kallo pointed out that he believes Archer Daniels could benefit from industry consolidation. A Bunge transaction would provide a valuation benchmark, which could be a positive catalyst for the former even if it is not the winning bidder, he contended. The analyst reiterated a Neutral rating and a $75 price target on Bunge’s shares. TAKEOVER PRICE: Commenting on the news report, Citi analyst David Driscoll told investors in a research note of his own that he believes $85-$100 per share is an “appropriate” takeover price for Archer Daniels to pay for Bunge. “Back of the envelope” deal math at the midpoint of the takeout range suggests accretion to Archer Daniels of 75c per share, Driscoll contended. Nonetheless, the analyst pointed out that there could be some antitrust issues in Archer Daniels’ and Bunge’s oilseed processing businesses in the U.S. and Europe. If Archer Daniels is unable to hold onto Bunge’s North American and European crushing assets in a deal, the transaction would be less attractive, Driscoll added. Meanwhile, his peer at Stifel said he sees the potential deal as a relatively logical fit given that Bunge’s business would “go a long way” to diversifying Archer Daniels’ geographic exposure. Analyst Vincent Anderson believes the latter could pay upwards of $96 per share for Bunge while still making an accretive deal. Nonetheless, he pointed out that Glencore would likely remain a competitor for the purchase of the assets. The analyst reiterated a Hold rating on Archer Daniels’ shares, while lowering his price target on the stock to $43 from $44. Stephens analyst Farha Aslam also commented on the media report, noting that according to prior news of Glencore’s interest, the company has a standstill agreement in place that expires in February. The analyst told investors that she believes Bunge could be valued at $90-$95 in a takeover scenario. Bunge’s product portfolio is far more commodity oriented compared to the value-added strategy that Archel Daniels has been articulating, so news of a potential combination is surprising, she contended. However, the analyst noted that the combination would likely yield significant synergies, create an asset base in key agricultural areas and potentially lead to more disciplined pricing. Aslam reiterated an Equal Weight rating and $72 price target on Bunge’s shares. PRICE ACTION: In morning trading, shares of Bunge have gained about 2.5% to $79.43, while Archer Daniels’ stock has advanced 2% to $41.80.
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