Reuters Finance News, Australia

(Adds byline, comment from Ridley, analyst)

By Michael Byrnes

SYDNEY, July 23 (Reuters) - Australian grains handler GrainCorp Ltd (ASX: GNC.ax) said on Wednesday it will not increase its offer for Ridley Ltd (ASX: RIC.ax) RCL.TO, effectively ending its hostile takeover attempt of the feeds producer.

GrainCorp said the fall in its share price since it announced the all-share bid in mid-May made the takeover unattractive to Ridley shareholders.

Based on Wednesday's share price after the bid announcement, GrainCorp's offer is valued at A$270 million ($262 million), down from around A$400 million when it was announced.

GrainCorp shares jumped more than 6 percent to A$8.26, while Ridley fell more than 5 percent to A$1.080. GrainCorp ended up 5 percent, and Ridley closed down 3 percent. Before the announcement, GrainCorp's offer valued Ridley, parent of Canadian-listed feeds firm Ridley Inc RCL.TO, at just 87 cents per share.

The market had not favoured the takeover attempt because to win, GrainCorp was seen as having to raise capital to sweeten the bid with cash, or to raise the number of shares on offer, said Jordan Rogers, an analyst with CommSec.

GrainCorp's balance sheet was already stretched, and existing shareholders did not want to see their holdings watered down by an increased issue of shares, he said.

Shares in GrainCorp, the dominant eastern Australian grains handler and trader, had fallen by around a third since its offer for Ridley was announced.

"The directors of GrainCorp believe our share price is currently undervalued. The price does not appropriately reflect the strength of our assets and the improving conditions for the 2008 grain harvest in the areas covered by our storage and logistics network," Managing Director Mark Irwin said in a statement.

UNDERVALUED?

Australia is still battling its worst drought in 100 years but hopes are high for a big winter wheat crop of over 20 million tonnes after recent rains.

That and high grains prices, as global food prices soar, will benefit the balance sheets of GrainCorp and other industry participants -- provided rain continues to fall until harvest begins in October.

"Our current share price and the external factors impacting on the share market make the ratio on which the bid is based potentially unattractive to Ridley shareholders," Irwin said, adding the offer may lapse on Aug. 26 at the end of the current offer period.

GrainCorp said it believed the fundamental rationale for the offer remained sound and that synergies could be achieved.

Ridley Chairman John Keniry said GrainCorp's acknowledgement that the offer may not be successful provided some clarity for Ridley shareholders.

"The announcement also means that the distraction associated with this takeover offer will be minimised and Ridley management can get on with the business of running the company," he said.

Ridley has said in the past that it has received "approaches" from unnamed parties, but declined to comment on Wednesday when asked if they were expected to lead to a new bid.

GrainCorp held about 19 percent of Ridley before the bid was launched. If the bid fails, the shares will revert to their previous owner, an investment fund.

GrainCorp said it planned to pursue opportunities related to the removal of Australia's wheat export monopoly, previously held by AWB Ltd (ASX: AWB.ax) ($1=A$1.03) (Editing by Lincoln Feast)