May 19, 2016 at 07:34 AM CST
BY TOM POLANSEK
Loss-making U.S. grain handler Andersons Inc (ANDE.O) on Wednesday rejected a $1 billion takeover offer from HC2 Holdings Inc (HCHC.A) as too low, calling the bid an attempt to capitalize on a sharp downturn in the agricultural economy.
With the U.S. farm sector drowning in supplies that have depressed crop prices, the Ohio-based agribusiness said it was better off remaining a "standalone entity" than selling to the holding company run by former hedge fund manager Philip Falcone.
HC2's takeover offers "represent an opportunistic attempt to acquire the company at a low point in the industry cycle," Chairman Mike Anderson said in a statement. HC2 had no immediate response.
Grain companies, including larger rivals Archer Daniels Midland Co (ADM.N) and Bunge Ltd (BG.N), have suffered as the global glut has hurt U.S. exports and encouraged farmers to keep their harvests in storage, rather than selling them to merchants.
Andersons, which buys grain, produces ethanol and leases rail cars, swung to a net loss in 2015 and in the first quarter of 2016. Before HC2's bid became public, Andersons' stock price was down nearly 45 percent over the past two years.
Shares were up 26.3 percent at $32.75 in afternoon trading and rose as high as $35.29, shy of HC2's latest offer of $37 a share. HC2 shares rose 1.5 percent to $4.05.
Mike Anderson, grandson of the grain company's founder, denied HC2's claim that it had not substantively responded to the offer. In January, HC2 offered $35, according to his statement.
"The offers are not credible, significantly understate the company’s true value and are not in the best interests of our shareholders,” he said.
If Falcone's persistence pays off, he would acquire a company that has grown to control the eighth largest U.S. network of commercial grain elevators by capacity since its start about 70 years ago. Andersons also runs the eighth-largest privately owned fleet of rail cars.
The value of such strategic assets should increase when overseas demand for U.S. crops recovers.
Some agricultural companies, which are more traditional bidders for farm assets, are interested in deals, too.
Last month, Chinese state-owned trader COFCO said it was in talks over potential partnerships or acquisitions in North America as it works to increase export capacity.
In the most recent agricultural deal, commodity trader Glencore PLC (GLEN.L) sold a 40 percent stake in its agribusiness to Canadian pension fund CPPIB for $2.5 billion.
Last year, Richardson International, one of Canada's largest grain handlers, said it was interested in Andersons as part of a push to expand in the United States.
Andersons handles crops and owns rail cars that serve the export market, although its business is mainly domestic.
HC2 said on Tuesday it would assume $402 million of the company's debt as part of its takeover offer.
The holding company also said it was willing to buy the company's grain and rail businesses for $950 million as an alternative. HC2 said it would make stalking horse bids for each of Andersons' remaining assets.
A "stalking horse" bid is an opening offer that other interested bidders must surpass if they want to buy the company.
Last fall, Andersons hired a new chief executive and president, Patrick Bowe, from global trader Cargill Inc [CARG.UL]. On Monday, he told Reuters the company was not looking to be acquired and that its diversified operations were an asset.
"I like growth," Bowe said in an interview. "That's been in my DNA."
Deutsche Bank is acting as a financial advisor for Andersons and Kirkland & Ellis is acting as a legal advisor. Credit Suisse is HC2's financial advisor and Jefferies is its legal advisor.
(Additional reporting by Arathy S Nair in Bengaluru and Lawrence Delevingne in New York; Editing by David Gregorio)