Grains marketers GrainCorp and AWB have said that the two companies will merge to create one of Australia’s largest diversified agribusinesses.
The two companies said today that GrainCorp would issue to AWB shareholders one GrainCorp share for every 5.75 AWB shares they owned, subject to an AWB shareholder vote. That is 9.6 per cent more than the closing price yesterday.
The all-share transaction will result in a nil premium merger, with the exchange ratio based on the volume weighted average prices of shares in each company over the last six months. Under the proposal, Graincorp will buy out AWB for a total of $856 million.
GrainCorp’s shareholders will hold 58 per cent and AWB shareholders 42 per cent of the merged company.
The combined entity will have a market capitalisation of more than $2 billion.
AWB shares were up 2.5 cents, or 2.62 per cent, at 98 cents, while Graincorp shares were down 7 cents, or 1.16 per cent at $5.95.
The merger is expected to add to earnings per share for both GrainCorp and AWB shareholders, with synergies in excess of $40 million per annum.
AWB also said that it had reviewed its earnings guidance and now anticipated that its profit before tax and significant items for continuing businesses for the full year ending September 30, 2010 will be within the range of $75 million to $95 million, compared to previous guidance of $85 million to $110 million.
AWB and GrainCorp said the merged entity would be more attractive to investors, with greater stock liquidity, improved access to capital and significant efficiencies.
Directors of GrainCorp and AWB unanimously support the merger proposal, which will be implemented via a scheme of arrangement.
The scheme is conditional on certain regulatory and other approvals, which are expected to be completed during the second half of 2010.
AWB has agreed to obligations that limit its ability to engage with third parties on a competing proposal.
Under the merger proposal, AWB chairman Peter Polson will become chairman of the new company, and GrainCorp chairman Don Taylor will become deputy chairman.
GrainCorp managing director Alison Watkins will become managing director of the merged entity.
The chief financial officer of AWB, Philip Gentry, will become chief financial officer of the merged entity.
‘‘The merged company will have the scale to compete more effectively against the large global grain companies now competing domestically, and exporting grain from Australia, and places us in a strong position to take advantage of the growing food demand from Asia, the Middle East and North Africa,’’ GrainCorp chairman Don Taylor said.
‘‘The merged company will be one of the largest rural focused businesses in the ASX 100.
‘‘Australian grain growers will benefit from stronger relationships with international buyers and a wider range of grain marketing alternatives, continued operation of AWB pools, finance and rural merchandising services.
‘‘The new company will be a significant grain exporter, a leading Australian flour miller and the worlds fourth largest commercial malt producer.’’
AWB chairman Peter Polson said there were obvious benefits in merging the two head offices and by cutting duplication throughout the organisation.
‘‘The business and geographic diversification that results from combining these two companies delivers a more stable earnings profile for shareholders, with the potential for increased revenues and reduced earnings risk across the company’s operations,’’ Mr Polson said.
The two companies said it was the intention, in the absence of unforeseen circumstances, for GrainCorp to pay a final fully franked dividend of about 10 cents per share, to which AWB shareholders would be entitled following implementation of the scheme, and a five cent per share fully franked special dividend to all shareholders of the merged company.
In March, AWB had agreed to sell its AWB Geneva business to United States-based Gavilon LLC for an as-yet undisclosed sum and to form a joint-venture with Gavilon covering AWB’s Australian commodity management business.
AWB Geneva is AWB’s remaining international commodity management business.
AWB had signed a non-binding memorandum of understanding with Gavilon regarding the sale of AWB Geneva and the formation of the 50:50 joint-venture.
AWB said that the AWB board had concluded that the proposed merger with GrainCorp would create more value for shareholders.
The move comes amid increased competition for domestic supplies from global grain companies.
Australia two years ago ended a monopoly system for wheat exports formerly held by AWB, spurring the entry into the market of international rival including Cargill and Louis Dreyfus. GrainCorp is the largest grain handler on Australia’s east coast.
‘‘It is a highly competitive market now that the big internationals have entered the space and a combined group would be a more competitive force,’’ Belinda Moore, a Brisbane-based analyst with Royal Bank of Scotland Group said today.
AWB fell 6.8 per cent to 95.5 cents on the Australian stock exchange yesterday, the largest drop since March 17. GrainCorp yesterday closed up 0.5 per cent at $6.02.
AAP, Reuters and Bloomberg