July 30, 2010

AWB to merge with GrainCorp

AWB Ltd. and GrainCorp Ltd. have announced a surprise plan to merge under the name GrainCorp, in a deal worth more than AUD2 billion (US$1.8 billion).

The merger will create Australia's largest diversified rural services business, in grain storage and handling, rural merchandising, malting, flour milling, grain export and marketing.

AWB has been negotiating all this year with US-based Gavilon LLC on a transaction involving the sale of its Geneva unit, and a joint venture for the Australian Commodity Management unit, and considering other proposals, but AWB chairman Peter Polson said the proposed merger with GrainCorp creates more value for shareholders.

Under the proposal, which requires AWB shareholder approval and a positive report from an independent assessor, GrainCorp shareholders will emerge with 58% of the merged company and AWB shareholders will hold 42%.

GrainCorp chairman Don Taylor said the merged company will have the scale to compete more effectively against the large global grain companies operating in the domestic market and exporting grain from Australia.

The merged company will be in a strong position to take advantage of the growing food demand from Asia, the Middle East and Africa, he said.

"The business and geographic diversification that results from combining these two companies delivers a more stable earnings profile for shareholders with the potential for increased revenues and reduced earnings risk across the company's operations," Polson said in a joint statement.

Under the agreement, Polson will become chairman of the new company, Taylor will be deputy chairman, while Alison Watkins - GrainCorp's incoming chief executive - will become managing director and AWB's chief financial officer, Philip Gentry, will retain that role.