UPDATE: GRAINCORP may have to divest AWB Limited’s half share in the Melbourne port terminal and some country grain storages if the two companies combine.
Today’s announcement of a takeover of AWB by GrainCorp is likely to catch the eye of the Australian Competition and Consumer Commission.
According to industry sources, AWB has about three million tonnes of storage capacity in Victoria, NSW, South Australian and Queensland under its GrainFlow banner.
It also owns 50 per cent of Melbourne’s grain terminal, with Japanese conglomerate Sumitomo owning the other half.
GrainCorp now finds it in the same situation it was in 2003 when it took over Queensland bulk handler Grainco.
Grainco had a half share in Australian Bulk Alliance, which owned a number of grain storages in Victoria and NSW with a capacity of one million tonnes and a 50 per cent stake in the Melbourne Port terminal.
The other half of the port terminal was owned by AWB.
As part of the approval of the Grainco takeover, GrainCorp was required by the ACCC to sell its acquired stake in ABA.
It ended up selling it to Sumitomo in 2004.
The industry source said if GrainCorp was allowed by the ACCC to take over AWB, it was almost certain the regulator would require the bulk handler to dispose of the half share in the Melbourne port terminal, plus its GrainFlow storages.
He said competition between port terminals was a sensitive issue in the grain industry at the moment.
He said if GrainCorp was able to keep its share of the port terminal, it would strengthen its export position in Victoria.
Earlier today the heads of both companies announced the friendly takeover, which, if approved by AWB shareholders later in the year, would result in a company capitalised at $2 billion with an annual turnover of $7 billion.
The deal sees the negotiations cease between AWB and US grain company Gavilon to set up a joint venture to run AWB’s international and domestic grain trading operations.
AWB chairman Peter Polson said the deal with GrainCorp was a “superior” option than one setting up a joint venture with Gavilon on grain trading.
"This is a very exciting day for our two companies (AWB and GrainCorp)," he said.
GrainCorp chairman Don Taylor said the deal provided "growth and value and relatively low risk".
Mr Taylor said it would provide $40 million in efficiencies.
The takeover will see the new combined business trade as GrainCorp.
The corporate head office will be located in Sydney.
AWB shareholders will receive one GrainCorp share for every 5.75 AWB shares.
Existing GrainCorp shareholders will hold 58 per cent and AWB shareholders 42 per cent of the combined company.
Mr Polson will become GrainCorp chairman and Mr Taylor deputy chairman.
Newly-appointed GrainCorp managing director Alison Watkins will be the executive head of the company.
The takeover announcement was Ms Watkins first day on the job, but she had been involved in negotiations during the past few weeks.
She said GrainCorp began discussing a deal once the exclusivity of the negotiations with Gavilon expired, believed to be June 29.
She said both companies had been carrying out an intense effort to identify the risks association with each other’s finances.
AWB shareholders will receive documentation on a scheme of arrangement which explains the deal in September.
This documentation will contain a recommendation by AWB’s board to accept the proposal in the absence of another offer, plus an independent expert’s report.
A scheme meeting will be held after September for AWB shareholders to vote on the proposal.
The vote will also include a resolution to remove the 10 per cent shareholder cap, which was introduced when the company restructured in September, 2008, to prevent takeovers.
GrainCorp shareholders are not required to vote on the takeover proposal.
If AWB shareholders approve the proposal, an order will be sought from the Supreme Court binding the two companies to implement the scheme of arrangement.
The two companies will then begin operating as a singe entity.
- Read more in The Weekly Times next Wednesday
