19 August 2010

Australian wheat market in Agrium crosshairs

Canadian fertiliser company Agrium has made a billion-dollar-move on Australian grain producer AWB, outstripping a merger offer from the domestic grain handler GrainCorp. The move comes against a backdrop of mounting worries over global wheat supplies driven by an export ban in Russia imposed by prime minister Vladimir Putin after a fierce heatwave and wildfires impacted crop production.

Shares in Australia’s largest wheat exporter advanced to an intra-day high of 144.50 Australian cents (130.54 US cents) on 16th August on news the agribusiness has tabled an unsolicited bid of 150.00 cents per share – valuing the deal at around AUD 1.22 billion and outstripping GrainCorp’s friendly takeover approach of 104.70 cents.

Chief executive Mike Wilson told reporters on 16th August that Agrium’s acquisition would provide access to a country which it believes has the potential to serve as a regional hub for further expansion in the Asia Pacific region. Wilson noted the company has been considering entering the Australian market for some years now, and it seems it found its break in the form of AWB.

Agrium appears to be particularly attracted to the Australian target’s landmark rural agricultural products and services business, which is tipped to be retained, but it is not clear what the future holds for AWB’s international commodity management operations. Wilson played down speculation Agrium may break up AWB, claiming the corporation is planning to bring value to Australia, not destroy it, as it appreciates the brand being acquired.

Australian wheat exporters are looking to consolidate following deregulation of the country’s grain export sector in 2008. Last year Viterra of Canada bought ABB Grain for AUD 1.63 billion while GrainCorp bought US commercial malt manufacturer United Malt Holdings for an enterprise value of AUD 757.00 million.

Meanwhile, Agrium’s unsolicited bid follows news that Russia, one of the world’s leading exporters of wheat, suspended exports for the rest of this year as poor weather conditions devastated crop production. Ukraine may now follow suit, placing a cap on exports until the end of December due to drought.

According to a report by the US department of agriculture (USDA), exports from Russia are expected to tumble to 3.00 million metric tonnes in 2010-11 from 18.50 million metric tonnes a year earlier. This may benefit the pockets of US farmers as the world could become dependent on their harvests; the USDA indicated US overseas wheat exports may jump 36.0 per cent to 32.66 million tonnes in the same timeframe.

© Zephyr