Deal of the day — or possibly for several months — in Australia focuses on a rare bit of homegrown M&A activity in the resources sector.
This time however, it’s in the less controversial field of grains, rather than the highly-charged mining sector, and with no acquisitive Chinese companies in sight, it entails the creation of what some have hailed as a national agribusiness champion that could take on global market leaders like Glencore, Bunge and Cargill.
GrainCorp, one of Australia’s largest grain handling and storage groups, has agreed to buy AWB, Australia’s largest wheat exporter, for A$856m ($769m) in a surprise, all-shares deal to create a merged company valued at more than A$2bn, reports the FT on Friday.
The news put paid to long-running efforts by US commodities company Gavilon to secure a 50-50 grain trading joint venture with AWB, despite both sides announcing a deal in May. AWB management said on Friday the GrainCorp deal offered more value for shareholders, according to Reuters.
The move comes amid intensifying competition in the Australian grain industry from international companies and appears well-timed on GrainCorp’s part. With soaring demand from countries including India and China and supply problems such as Russia’s drought, agricultural companies worldwide are seeking acquisitions to boost output.
It is also a well — if not dauntingly — timed deal for GrainCorp’s new chief executive, Alison Watkins, coming on her first day in the job.
Watkins, former CEO of investment and funds manager Bennelong Group, was involved in the AWB negotiations for several weeks before officially starting on Friday, according to BusinessSpectator.
The deal is also the latest in a series of moves in the Australian grain sector following deregulation of the country’s grain marketing sector in 2008.
GrainCorp more than doubled its size last year with the $655m acquisition last October of US malt maker, United Malt Holdings. That deal came after Viterra, Canada’s largest grain handler, completed its A$1.6bn purchase of ABB Grain, Australia’s largest barley exporter. Meanwhile, the FT adds, Australian groups have been buying rivals in overseas markets to boost competitiveness.
And there will be more to come, says BusinessSpectator’s Stephen Bartholomeusz, noting:
Once the merger has been bedded down – it will be implemented via an AWB scheme of arrangement – the market may turn its attention to the prospects of the bulked up Graincorp acquiring the struggling Elders and bringing AWB’s Landmark business next to the other big rural services business in this market. The merger should create options for further growth.
Bartholomeusz adds:
The logic of putting the two Australian groups together is compelling. Separate to the synergies of A$40 million a year and the deeper liquidity in the market for their paper, the merger will create financial scale – revenues of more than A$7 billion a year, a much larger and well-capitalised balance sheet and diversification of earnings – as well as product and geographical diversity.
Other commentators, however, are not so sure.
The Australian’s business columnist John Durie, for one, is distinctly underwhelmed, asserting:
Strategically, GrainCorp brings nothing to AWB except a pristine balance sheet and a better corporate track record. Its grain handling facilities are primarily domestic focussed when AWB’s strength is on the export side. This explains why ABB would have been the better merger partner but, of course, ABB baulked because of the ongoing UN scandal [over alleged kickbacks on wheat supply contracts] and is now in the hands of grain giant Viterra.
Related links:
Bullish food forecasts whet investors’ appetite - FT
Graincorp to buy AWB for $803m to supply Asia - Bloomberg
Another day, another Chinese resources deal – FTAlphaville