August 16, 2010

Agrium offers US$1.2 billion to AWB

Canada's Agrium has made a AU$1.2-billion (US$1.07-billion) offer for AWB, topping a bid from domestic rival GrainCorp and highlighting the competition for Australian wheat as global prices surge.

Competition for Australian wheat exporters has intensified amid a surge in global prices after Russia halted grain exports as crops were destroyed by drought and fires.

Demand for Australian wheat has been boosted by customers from Asia and the Middle East seeking to make up the shortfall left by Russia's export ban. Australia, the world's fifth-biggest wheat exporter, is expecting a solid harvest. The Australian Bureau of Agricultural and Resource Economics, an official forecasting body, estimates the country's harvest this year will yield 22.1 million tonnes, up 2% from last season.

The deal is the latest as the Australian industry, which comprises more than 20 wheat export groups, looks to consolidate following deregulation of the domestic grain marketing sector in 2008.

The AWB board said under the terms of its merger agreement last month with GrainCorp it was able to "engage in discussions or negotiations concerning the Agrium proposal."

AWB said it still wanted to pursue the all-share merger proposal. However, that view may change if Agrium's "limited due diligence" requirement, which could take less than two weeks, translates into an unconditional offer.

"At this stage, the merger implementation deed with GrainCorp remains on foot and AWB directors have not withdrawn or modified their previous recommendation that shareholders vote in favour of the merger," the group said.

The Melbourne-based farm product retailer and wheat exporter said its offer was at a 57% premium to AWB's trading price on the day before the GrainCorp merger announcement. Mike Wilson, Agrium chief executive, said buying AWB was part of the group's strategy of expanding its retail business.

"Agrium sees significant potential to enhance the product and service offerings to the Australian and New Zealand grower, particularly through AWB's retail Landmark Rural Services division," Mr Wilson said.

The bid also underlines a desire to play a bigger role in Australia's agribusiness sector. AWB would provide Agrium with a platform to expand its operations in the Asia Pacific region. Agrium's proposal needs approval from Australia's Foreign Investment Review Board and the removal of the 10% shareholding cap under AWB's constitution.