AWB Ltd., Australia’s largest wheat exporter and No. 2 rural services supplier, recommended a A$1.2 billion ($1.1 billion) bid from Agrium Inc., withdrawing its support for an all-stock proposal from GrainCorp Ltd.
Agrium’s A$1.50 a share cash offer will be subject to foreign investment and shareholder approval, Melbourne-based AWB said today in a statement. The board recommended the bid in the absence of a superior proposal.
Purchasing AWB will enable Agrium, North America’s third-largest fertilizer producer by market value, to broaden sales of farm products into Australia, the fourth-largest wheat exporter. BHP Billiton Ltd. has bid $40 billion for Potash Corp. of Saskatchewan Inc., as forecasts for rising food consumption boost demand for fertilizer and agricultural assets.
“If you look globally, there are not that many prime acquisition targets out there, particularly in a stable sovereignty such as Australia,” said Joe Youssef, Bell Potter Securities Ltd.’s Western Australia manager.
AWB fell 0.7 percent to A$1.455 on the Australian stock exchange at the 4:10 p.m. Melbourne time close. GrainCorp rose 0.4 percent to A$6.99.
GrainCorp, eastern Australia’s largest grain handler, on July 30 offered one share for every 5.75 AWB shares, valuing its bid at A$994 million, based on today’s closing price.
Chance to Respond
The Sydney-based company was given three days to respond to the higher Agrium offer under the terms of the July agreement before AWB could confirm it had changed its recommendation.
Agrium isn’t a grain-trading company and could potentially divest AWB’s grain business, Belinda Moore, a Brisbane-based analyst with Royal Bank of Scotland Group Plc said in a report this month.
There was a “low probability” of further rival bids, Citigroup Inc. analyst Andy Bowley wrote in an Aug. 20 report.
Potential rival bidders that may want to buy the grain trading operations, such as GrainCorp, Cargill Inc. or Gavilon LLC, were more likely to negotiate with Agrium than make a bid for the entire company, he said.
GrainCorp spokesman David Ginns declined to comment on whether the company would seek to purchase AWB’s grain trading assets. “Obviously we see value in those assets because they were part of the merger proposal, but we have no knowledge of what Agrium may want to do with those assets,” he said.
AWB’s rural services unit had sales of A$821.3 million in the six months ended March 31, accounting for 27 percent of revenue from continuing businesses. It sells merchandize to farmers through its Landmark unit in Australia and also supplies agricultural and animal health products in New Zealand.
The company’s commodity management operation includes purchasing and marketing of Australian wheat supplies and trading of international grains through its Geneva office.
Agrium’s Chief Executive Officer Mike Wilson has completed nine acquisitions valued at about $3.4 billion in the past five years. The company was seeking targets, he said in May after a failed $5.4 billion bid for fertilizer maker CF Industries Holdings Inc.
“We are pleased with the AWB Board’s decision to support our offer and expect the transaction to bring immediate value to both AWB and Agrium shareholders,” Wilson said in an e-mailed statement today.
Other global companies to expand in Australian agriculture include Viterra Inc., based in Regina, Saskatchewan, which last year paid A$1.6 billion for ABB Grain Ltd. Singapore-based Wilmar International Ltd. in July agreed to pay A$1.75 billion for CSR Ltd’s sugar unit.