Canada's Agrium Inc. (AGU) made a A$1.24 billion (US$1 billion)
unsolicited bid for Australian wheat exporter AWB Ltd. (AWB.AU),
topping a proposed merger with GrainCorp Ltd. (GNC.AU) as poor
harvest prospects spur a global grab for wheat.
Canada's second-largest fertilizer producer said Monday it is
offering to pay A$1.50 in cash for each AWB share, a 32% premium to
GrainCorp's bid. Sydney-based GrainCorp is offering one share for
every 5.75 AWB shares, valuing its bid at A$1.14 for every share in
Australia's troubled former wheat-export monopoly, based on
Monday's closing prices.
GrainCorp on July 30 unveiled its plans for an all-share merger,
valued at more than A$930 million, with AWB.
Calgary-based Agrium says the acquisition enables it to expand
into Australia, which like the U.S. is a major grain exporter
that's expected to benefit from ballooning demand for its wheat,
and become a launchpad into Asia. The company, with operations in
North and South America, Europe and Egypt, is North America's
largest direct-to-grower agricultural retail network, with more
than 929 retail outlets in the U.S.
"Australia will be a hub from which we can further grow in
Asia," said Agrium Chief Executive Mike Wilson in an interview.
"We've been looking to break into Australia for the past five
years. AWB is a good cultural fit, and it's one that we can lever
our strengths into from a retail, wholesale and advanced technology
point of view," he said.
Agrium's unsolicited bid comes as a drought in Russia, as well
as flooding in China and Canada, have threatened the world's wheat
supply and pushed up global grain prices. Canada's woes, in
particular, are expected to lead to a 24% drop in wheat production
this crop year, pummeling a traditionally big market for Agrium's
fertilizer. The U.S. Department of Agriculture last week cut its
global wheat output forecast for the coming crop year by 2.3% to
645.73 million tons, a week after Russia said it was banning grain
exports because of crop damage from its drought. The Russian
announcement sent wheat prices soaring to near two-year highs.
The bid also follows Agrium's withdrawal earlier this year from
a four-way battle to buy Deerfield, Ill.-based fertilizer producer
CF Industries Holdings Inc. (CF), in an attempt to become the
world's second-largest publicly traded producer of nitrogen-based
nutrients. Agrium has completed nine acquisitions valued at about
$3.4 billion in the past five years.
AWB shares surged 30% in Sydney following the Agrium bid, to
A$1.42 its highest close since February 2009. In New York, Agrium
fell slightly in after-hours trade Monday, to $65.77.
Melbourne-based AWB, with more than 2,200 employees, is
Australia's largest distributor of rural merchandise and
fertilizer. Wilson said Agrium is hoping to market its
international fertilizer and crop-protection capabilities through
the 400 outlets in AWB's Landmark national rural merchandise and
service network.
AWB also has two other business lines that it had been
considering either finding partners for or selling. They are the
commodity-management group, which handles and distributes grain,
and the international grain-trading group.
Wilson said Agrium is weighing several options for these two
lines should the company acquire AWB. "We'll look at all options,
from divesting to partnering, to keeping parts of it," he said.
Since deregulation in 2008, Australia's wheat market has
attracted keen interest from foreign agribusiness companies. Last
year, South Australia-based ABB Grain Ltd. was snapped up by
Canada's Viterra Inc. (VT.T) for about A$1.65 billion. If
successful, Agrium's takeover of AWB would mark the second time a
Canadian company has acquired a major Australian agricultural
company.
Agrium's bid is conditional and requires unanimous support from
the AWB board, as well as approval from Australia's Foreign
Investment Review Board.
Wilson said he doesn't foresee any roadblocks. "We bring a range
of new products that should help the company grow from our private
label to proprietary environmental. We're a company that typically
manages and operates locally. From a farmer perspective, they were
looking at a merger of equals and if anything, we should enhance
competition for them," he said.
In a statement, AWB said its directors "haven't withdrawn or
modified" their recommendation that shareholders vote for a merger
with GrainCorp. Their merger was expected to create Australia's
largest grain-trading company and its biggest agribusiness with a
market capitalization of around A$2 billion and annual sales of
more than A$7 billion. Their accord, which has a A$8 million
breakup fee, doesn't prevent them from talking with Agrium.
AWB came under fire during the U.N. oil-for-food scandal after
it was found to have paid $221 million to the Iraqi regime of
Saddam Hussein to secure wheat sales. With the scandal leading to
renewed calls to open the market to competition, AWB lost its
monopoly over bulk wheat exports in July 2008. Since then, more
than two dozen wheat exporters emerged.
The company posted a A$250.8 million loss in fiscal 2009 and a
loss of A$64.8 million in the fiscal 2010 first half ended March
31.
Further consolidation is expected in Australian agriculture,
Citi analysts said. Potential targets include GrainCorp itself,
Elders Ltd. (ELD.AU), which runs Australia's other major national
rural services and merchandise network, and stockfeed and salt
company Ridley Corp. (RIC.AU). Elders' shares closed 12% higher
Monday.
GrainCorp offers strategic merit to international grain players,
including Viterra, Minneapolis-based Cargill Inc., White Plains,
N.Y.-based Bunge Ltd. (BG) and Singapore-based Noble Group Ltd.
(N21.SG), Citi said in a report.
-By Ray Brindal and Caroline Van Hasselt, Dow Jones Newswires;
612 62080902; ray.brindal@dowjones.com
(Phred Dvorak contributed to this article.)
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