Canada's Agrium Inc. (AGU) unveiled an all-cash A$1.24 billion
($1.1 billion) unsolicited takeover bid for Australian wheat
exporter AWB Ltd. (AWB.AU), trumping a merger proposal from rival
GrainCorp Ltd. (GNC.AU).
Agrium, which earlier this year failed in its bid to buy
fertilizer producer CF Industries Holdings Inc. (CF), said it
proposes to pay A$1.50 in cash for each AWB share, valuing the
troubled former wheat export monopoly at A$1.24 billion ($1.1
billion), a level considerably higher in value than the share-based
merger with Sydney-based GrainCorp.
Canada's second-largest fertilizer producer said its proposal
represents a 57% premium to AWB's closing price of A$0.955 on July
29, just before the merger plan with Graincorp was announced. Under
that plan, AWB shareholders were to get one GrainCorp share for
every 5.75 shares held. At Monday's GrainCorp closing price of
A$6.53/share, that works out to around A$1.14 for every AWB
share.
AWB shares surged 30% following the Agrium bid to A$1.42, its
highest close since February 2009. In New York Monday, Agrium was
down 80 cents to $66.47 on about 265,000 shares.
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.
Calgary-based Agrium said it sees significant potential to
enhance its product and service offerings to Australian and New
Zealand growers. Melbourne-based AWB, with more than 2,200
employees, is Australia's largest distributor of merchandise and
fertilizer, offering a full range of products and services,
including merchandise, fertilizer, farm services, wool and
livestock marketing, financial services and real estate sales.
Through the 400 outlets in AWB's Landmark national rural
merchandise and service network, Agrium is hoping to market its
international fertilizer and crop protection capabilities,
President and Chief Executive Mike Wilson said.
Wilson has completed nine acquisitions valued at about $3.4
billion in the past five years. In March, Agrium withdrew from a
four-way takeover battle for Deerfield, Ill.-based fertilizer maker
CF Industries in a bid to become the world's second-largest
publicly traded producer of nitrogen-based nutrients.
Agrium expects the proposed AWB acquisition to be immediately
accretive to earnings. In a note, RBC Capital Markets estimates
that the acquisition could boost Agrium's earnings per share by
about 25 cents.
The bid represents attractive value and cash certainty for AWB
shareholders and seeks to continue Agrium's strategy of growing its
retail business, Wilson said. Agrium is a major retail supplier of
agricultural products and services in North and South America and a
global producer and marketer of agricultural nutrients and
industrial products.
Agrium's bid comes amid a sharp rally in global grain prices
driven mostly by the impact of a Russian drought and a subsequent
ban on Russian wheat exports through Dec. 31.
AWB said the agreement with GrainCorp, expected to create
Australia's largest grain trading company and its biggest
agribusiness with a market capitalization approaching A$2 billion
and annual sales in excess of A$7 billion, doesn't prevent it from
talking with Agrium.
But the Agrium bid itself is conditional on it being allowed to
conduct due diligence on certain financial and legal matters, and
will need approval from Australia's Foreign Investment Review
Board. It will also need the unanimous support of AWB's board.
Given these conditions, that it is subject to negotiation and
that it may not lead to a definitive agreement, "the merger
agreement with GrainCorp remains on foot and AWB directors haven't
withdrawn or modified their previous recommendation that
shareholders vote in favor of the merger with GrainCorp," AWB said
in a statement.
While the new development could result in increased attention on
AWB, "GrainCorp (is) unlikely to counter bid, as this isn't a
must-do deal" for them, Citigroup said in a note Monday.
The market seemed to agree, with reduced prospect of a merger
driving GrainCorp shares 4.2% higher to A$6.53/share Monday.
But Citi said other competing bids for AWB can't be ruled out,
given Landmark offers international agribusinesses a leading
position within the Australian rural services sector.
As one of Australia's two large wheat exporters, AWB has a
commodities management business with operations in Australia and
Geneva, offering trading, logistics, ship chartering and risk
management services.
RBC says it wouldn't be surprised if Agrium sold AWB's
commodity-management business, given its interest in AWB largely
relates to Landmark.
The company came under fire during the United Nations
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 and has lost its pre-eminent position with the entry of more
than two dozen wheat exporters since then.
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.
Citi analysts said further consolidation is expected in
Australian agriculture with under-valued assets and positive
longer-term industry fundamentals as key drivers.
Potential targets include GrainCorp itself, Elders Ltd.
(ELD.AU), which operates 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 grains players
including Cargill, Viterra, Bunge and Noble, Citi said in a report.
Favorable industry fundamentals together with the prospect of
further M&A activity is likely to support share prices within
the agri sector," it said.
-By Ray Brindal, Dow Jones Newswires; 612 62080902;
ray.brindal@dowjones.com
(Caroline Van Hasselt in Toronto contributed to this
article.)
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