November 28, 2008

Australian grain giants in US$1.5 billion merger


Rival grain operators AWB and ABB Grain are believed to have opened merger talks with an eye to creating a US$1.5 billion giant dominating the nation's agriculture export markets.


The two groups have long been the subject of rumour as being potential partners, especially since AWB lost its monopoly export powers in July.


While discussions remain at an early stage, any deal could set off a renewed round of consolidation within the nation's listed agricultural sector, perhaps extending as far as fertiliser interests Incitec and Nufarm revisiting merger talks. However, any deal could leave eastern Australia's biggest grain handler, GrainCorp, under pressure to bulk up.


AWB managing director Gordon Davis last week said industry consolidation was inevitable and the wheat exporter's recent shareholder restructure had meant it was better placed to participate.


AWB shareholders this year finally approved a plan allowing the grains giant to abolish its A class shares, available only to wheat growers. Those shares, which gave growers the power to appoint directors but could not be traded, were widely seen as providing an obstacle to any widespread corporate activity.


AWB last week handed down a 2007-08 profit of A$64.3 million, more than double that of the previous year.


At the time Mr Davis declined to give guidance for the coming year, but said he was confident of picking up a large slice of the nation's wheat crop for marketing. AWB's previous large acquisition was an A$825 million move on rural services group Landmark.

ABB, which specialises in barley marketing, this week recorded a A$48.8 million full-year net profit after tax, up dramatically from A$7.3 million the previous year. Total revenue was A$2.24 billion, up 48 per cent on A$1.52 billion the previous year.


Still ABB is tipping a stronger profit next year despite another below-average winter crop due to the dry weather.


Outgoing ABB managing director Michael Iwaniw this week said it was disappointing that ABB was facing a below-average harvest.


Receivables would be lower than normal, but Mr Iwaniw forecast "a materially better profit next year" due to diversification and better management of storage and handling sites.


Yesterday, AWB shares closed up 6 cents at A$3.19 while ABB shares fell 16 cents to A$6.49.


US$1=A$1.522 (Nov 28)

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