February 17, 2016 / 5:43 AM / 4 years ago

GrainCorp joins bid to buy Australia's biggest grain exporter

SYDNEY (Reuters) - Australia’s GrainCorp will join a consortium that aims to acquire and list the country’s largest wheat exporter, valued at up to $2.1 billion, potentially putting Graincorp in the box seat to take over its west coast rival.

A worker at the Sydney headquarters for GrainCorp walks past a company sign November 29, 2013. REUTERS/David Gray

The proposal to list Western Australia-based Co-Operative Bulk Handling Ltd (CBH) is being led by Australian Grains Champion, a grower-led initiative that includes farmers and some former directors of CBH.

The value of CBH would be determined through an initial public offering, GrainCorp said, but analysts said the Western Australian cooperative could be worth as much as A$3 billion ($2.1 billion).

GrainCorp said it would be a cornerstone investor, committing as much as A$600 million, which would be transferred to an equity stake in CBH once it was listed.

Such an investment would give GrainCorp a 20 percent stake in CBH if it was valued at A$3 billion.

“Our proposed investment is a good strategic fit for GrainCorp, bearing in mind CBH’s complementary assets and capabilities,” said Mark Palmquist, GrainCorp managing director and chief executive officer.

CBH said in a statement it had received the proposal and an assessment would take “several weeks”.

Should CBH agree to put the deal to its 4,200 farmer owners, the proposal would require at least 75 percent support to go ahead.

If a deal goes ahead, CBH’s farmer owners will receive shares in Australian Grains Champion (AGC) consortium, along with a A$600 million sweetener.

Palmquist acknowledged on a conference call with reporters that getting necessary shareholder approval may be challenging.

AGC, which said its bid was also supported by a “tier one Australian institution”, believes its plan would unlock cash for farmers and put CBH on a more commercial footing.

“We need to move on, we need to modernize,” AGC director Clancy Michael told Reuters.

NEED TO DIVERSIFY

GrainCorp said joining the CBH proposal was part of its strategy to diversify away from grain production in Australia’s east coast, where dry weather has affected crops and cut into profits.

Western Australia is the country’s largest grain producing region, accounting for more than a third of all production.

A CBH listing would draw wide takeover interest, but Australia’s political landscape meant GrainCorp would likely be in pole position, analysts said.

Bowing to pressure from growers, the Australian government in 2013 rejected a A$2.8 billion bid for GrainCorp by U.S. agribusiness giant Archer Daniels Midland Co Ltd on national interest grounds.

“The big global agribusinesses would all be attracted to CBH given its market leadership in Australia’s largest grain market,” said Belinda Moore, analyst at RBS Morgans.

“A combined GrainCorp and CBH would be an Australian champion,” she added, potentially allowing it to better compete in international markets.

Palmquist refused to be drawn on the possibility of a full takeover of CBH.

Australia is the world’s fourth-largest wheat exporter, selling just shy of 19 million tonnes of the grain this season to markets in Asia, but it is also rated as the world’s most expensive country to produce wheat.

It has lost market share in the Middle East to Black Sea producers, who are also challenging its dominance in Asia, and faces an increased export drive by Argentina.

Reporting by Colin Packham; Additional reporting by Ian Chua; Editing by Richard Pullin

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