GRAINCORP may have to sell assets to get the green light for a merger with AWB Limited, writes PETER HEMPHILL

Seven years ago, GrainCorp was forced by the competition regulator to divest itself of a half share in the Melbourne port terminal when it took over the operations and assets of Queensland bulk handler Grainco.

It's ironic that, now with the friendly takeover of AWB Limited, GrainCorp finds itself in exactly the same position with the other half of the Melbourne grain terminal.

The Australian Competition and Consumer Commission will have to assess the appropriateness of GrainCorp's takeover of AWB.

The deal is another chapter in the consolidation of the Australian grain industry and is probably a good fit of the existing operations of the two companies.

With Canadian company Viterra taking over ABB Grain last year, the only remaining question is what will happen to CBH Group in Western Australia?

As one grain industry identity said: "CBH is so focused internally, the world is moving past it."

If the ACCC, along with AWB's shareholders, approves the deal, the key issue for the commission will be whether GrainCorp is required to sell off its share in the port terminal, along with the AWB-owned GrainFlow grain storage sites.

The evidence suggests the sale is likely.

In 2003, the ACCC gave GrainCorp 12 months to sell Grainco's half share in the Melbourne terminal and 50 per cent stake in Australian Bulk Alliance, which operated about nine bunker storages in Victoria and NSW with a capacity of one million tonnes. GrainCorp is already arguing it should not have to sell assets.

As corporate affairs spokesman David Ginns says, the Federal Government has an access regime designed to protect port users against regional port monopolies flexing muscles.

But submissions by grain exporters to this year's Productivity Commission hearings on post-single desk wheat marketing arrangements, coupled with presentations to last week's Australian Grain Industry Conference, suggest the access arrangements don't work.

Competition at the ports is a sensitive issue among grain exporters and is likely to be a major issue as the GrainCorp-AWB deal is debated.

The GrainCorp-AWB deal will have at least one positive outcome: the combined entity will be known as GrainCorp.

That removes the smell associated with the AWB name for the past four years as a rorter of the United Nation's Oil For Food program with illegal payments to former Iraqi dictator Saddam Hussein.

It must rankle AWB directors that the company they oversee was associated with one of the darkest chapters in Australian corporate history.

One curious aspect of the GrainCorp-AWB deal is the boards of both companies will be rolled into one, making 10 non-executive directors plus the managing director.

The question is why didn't the merger implementation deed rationalise the number of directors down to, say, six or seven at the outset rather than let it be resolved down the track?

There was probably an argument for Mr Polson to opt out, for one. He had been on the AWB board since 2003 - as long as some of the grower directors, who were all dumped - and failed to pick up the illegal payments to Saddam.

As chairman, he should have taken responsibility late last year for the $200 million the company lost in the ill-fated Brazil venture and at last year's annual general meeting, Mr Polson and his fellow directors were accused of losing touch with grain growers.

Farmers no longer carry any weight in the company and voting on the takeover will be decided by institutional shareholders.

And the vote will be determined on shareholder value.

Most Australian farmers will not be interested in the vote and, if it gets approval, probably not notice much difference in the combined company's new operation.

There will be just one less company in the now highly competitive grain market.

  • Peter Hemphill is The Weekly Times' grains writer