GrainCorp to Buy AWB for A$803 Million to Supply Asia
GrainCorp Agrees to Acquire AWB for A$856 Million
Jeremy Piper/Bloomberg
GrainCorp, eastern Australia’s largest grain handler, offered one of its share for every 5.75 AWB shares, valuing each share of the Melbourne-based company at A$1.047.
GrainCorp, eastern Australia’s largest grain handler, offered one of its share for every 5.75 AWB shares, valuing each share of the Melbourne-based company at A$1.047. Photographer: Jeremy Piper/Bloomberg
GrainCorp Ltd. agreed to buy AWB Ltd. for A$803 million ($723 million) to become Australia’s top wheat exporter, taking on Cargill Inc. and Viterra Inc. in supplying Asia, the biggest buyer of the grain.
GrainCorp, eastern Australia’s largest grain handler, offered one share for every 5.75 AWB shares, the two companies said today in a statement. That values the Melbourne-based company’s stock at 98.3 cents each.
Viterra, the largest Canadian grain handler, bought Australia’s ABB Grain Ltd. last year after the fourth-largest wheat exporting nation ended AWB’s monopoly over overseas shipments two years ago. Agricultural companies worldwide are seeking acquisitions to meet surging demand for food led by China and India, the two most populous countries.
“It is a highly competitive market now that the big internationals have entered the space and a combined group would be a more competitive force,” Belinda Moore, a Brisbane-based analyst with Royal Bank of Scotland Group Plc, said today.
AWB, which made a first-half loss, rose 3.7 percent to 99 cents at the 4:10 p.m. local time close on the Australian stock exchange. Sydney-based GrainCorp fell 6.2 percent to A$5.65.
The Australian government ended AWB’s monopoly after an inquiry found the company was among 2,200 firms that made illegal payments to win contracts from Saddam Hussein’s regime under the United Nation’s oil-for-food program.
AWB’s credit rating of BBB- was placed on creditwatch with developing implications by Standard & Poor’s Ratings Service. “We believe the business profile of AWB Ltd. will be bolstered if the merger proceeds,” the agency said.
300 Silos
The combined company will be Australia’s largest agribusiness, AWB Chairman Peter Polson said. The group will have about 300 silos across four states and operate seven grain export elevators as well as two bulk shipping ports, the companies said.
“The merged company will have the scale to compete more effectively against the large global grain companies now competing domestically, and exporting grain from Australia, and places us in a strong position to take advantage of the growing food demand from Asia, the Middle East and North Africa,” GrainCorp Chairman Don Taylor said in a statement.
AWB exported 27 percent of Australian bulk wheat in calendar 2009, according to industry estimates in a government report on arrangements since the monopoly ended. Closely held CBH Group shipped 24 percent, Cargill 12 percent GrainCorp 11 percent and Viterra 6 percent.
Gavilon Talks
“Australian production can easily get into Southeast Asia and into the Middle East and across to Africa and we have a competitive edge over everyone in Southeast Asia,” Peter Rowe, an agricultural economist at Perth-based BankWest, said by phone. “There is increasing affluence in those countries and they are starting to consume more of the higher-quality grains.”
GrainCorp began negotiations with AWB after an exclusivity agreement expired at the end of last month on talks between AWB and Omaha, Nebraska-based Gavilon LLC on a domestic grains management joint venture and the sale of the Geneva unit.
The merger will cut costs by A$40 million in the first two years and boost earnings from the second year, the companies said in a presentation. GrainCorp’s Alison Watkins will take over as chief executive officer of the merged company. The deal is subject to approval by AWB shareholders and GrainCorp and the Australian Competition and Consumer Commission.
The majority of Australian bulk wheat exports are shipped to Asia, according to a report by Wheat Exports Australia.
Global food production has to rise 70 percent by 2050 as the world population expands to 9.1 billion people from about 6.8 billion people now, the UN Food and Agriculture Organization has said. Developing countries will be the main source of rising output, consumption and trade, according to the group.
GrainCorp is also the world’s fourth-largest malt producer and the transaction will diversify its earnings through the addition of AWB’s Landmark rural services unit.
AWB also cut its full-year forecast for profit before tax and onetime items to between A$75 million and A$95 million. This compares with its March prediction of between A$85 million and A$110 million.
To contact the reporter on this story: Wendy Pugh in Melbourne wpugh@bloomberg.net.
To contact the editor responsible for this story: Andrew Hobbs at ahobbs4@bloomberg.net
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