Viterra, ABB Grain come to terms

Weeks of talks have led to a formal C$1.4 billion cash-and-stock offer by Canada’s largest grain company for Australian grain handler ABB Grain.

The board of Adelaide-based ABB said Tuesday it has unanimously recommended that ABB shareholders vote in favour of a proposed deal with Regina-based Viterra, the board of which has also unanimously approved the deal.

“We are creating a leading global food ingredients supplier at a time when markets are expanding,” Viterra CEO Mayo Schmidt said in a release.

“With assets in the key exporting geographies of Australia and Canada, the new company will have enhanced access to high growth markets and margin opportunities. We will be financially stronger and better able to access capital and manage risks required to succeed in the global marketplace.”

“Australian growers and farmers in Canada can be assured that the combined company will remain firmly committed to marketing their respective crops,” ABB chairman Perry Gunner said in the same release.

“In fact, our boards are confident that the combination will give the company more market presence, access to new markets and more opportunities to achieve premium prices for growers.”

Furthermore, Gunner said, the proposed combination “de-risks the delivery of ABB’s business strategy, creating a more diversified business and geographic earnings spread.”

Until now, the companies said Tuesday, each has focused primarily on marketing grains from their respective countries. Demand for core commodities, however, is forecast to increase by 20 per cent over the next 10 years, with much of the new demand coming from Asia.

“Counter-seasonal”

To that end, “dual origin” capabilities from Australia and Canada are expected to represent a “significant competitive advantage in serving this growing demand,” Viterra and ABB said.

As well, ABB managing director Michael Iwaniw noted, with seeding and harvests at opposite ends of the globe, the deal offers the two companies “counter-seasonal cash flows and a more even distribution of earnings.”

The two firms expect to achieve “synergies” of A$30 million per year within three years, by combining “reciprocal best practice efficiencies” and using their international scale as leverage.

Reuters on Tuesday quoted Viterra’s Schmidt as saying layoffs would not be part of the expected synergies. Little would change in terms of the company’s management, with Viterra’s head office remaining at Regina and its Australian, New Zealand and Southeast Asian operations to be based in Adelaide, South Australia.

The deal calls for ABB shareholders to get A$9.26 per share, consisting of A$4.35 cash and 0.45 Viterra shares, plus an A41-cent dividend, as their “default” alternative.

Other options, depending on availability, include a “maximum cash” alternative of A$8.70 cash and the A41-cent dividend, for A$9.11 per share, or the “maximum scrip” option of 0.91 Viterra shares per ABB share plus the A41-cent dividend.

Reuters on Tuesday noted that Viterra, in its previous incarnation as Saskatchewan Wheat Pool, had followed an ill-fated path of global expansion in the late 1990s.

The company, which went public in 1996, sunk money into new concrete across the Prairies, a number of agribusinesses and agri-food processors, and grain handling ventures in Mexico and Poland, leaving the company bleeding red ink and on the brink of bankruptcy by 2003.

Schmidt became SaskPool’s CEO in 2000 after the exits of the previous expansion’s architects, and led it through restructuring followed by its 2007 takeover of Agricore United, then Canada’s largest grain handler.

Reuters quoted Schmidt on Tuesday as saying this expansion, unlike SaskPool’s, “has been well-planned” and backed by funds raised through a prior offering. ABB’s Iwaniw added that Viterra and ABB have a good fit with similar corporate cultures and histories.

Reuters also quoted National Bank Financial analyst David Newman as saying Viterra could still have room on its balance sheet to make further acquisitions in Australia, such as Graincorp Ltd.

ABB had recently sought to merge with AWB Ltd., the former Australian Wheat Board, but those two companies walked away from talks in December last year, saying they “couldn’t agree on commercial terms.”

ABB brings a wide range of agribusiness holdings to the table with Viterra, including:

  • 111 inland storage facilities and seven export terminals, plus its new Outer Harbour export terminal nearing completion;
  • Joe White Maltings, one of the world’s largest producers of malt, with eight plants of combined annual production capacity of 500,000 tonnes;
  • grain marketing and distribution and feed milling operations in New Zealand;
  • Prograin, a container packing operation for grains and other commodities, with five packing facilities and a sixth planned for Sydney;
  • Southern Wharf Services which manages the shipping program for ABB and provides ship owners and shippers with bulk shipping services across Australian ports;
  • New World Grain, a Ukrainian joint venture with French firm Soufflet, opened in 2007; and
  • a “Rural Services” division set up in late 2006 and encompassing ABB’s farm retail and ag chemical supply, general merchandise, financial services, wool and livestock activities.

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