As shareholders of ABB Grain Ltd. consider whether to approve a $1.4 billion takeover bid by Viterra, other potential buyers may be lurking in the weeds.
One Australian market analyst last week raised the possibility of another company making a competing bid for Australia’s biggest agribusiness firm.
“ABB is in play and interest from another party cannot be ruled out,” said Belinda Moore of ABN-AMRO Morgans, who tracks ABB Grain.
She didn’t speculate as to who might make a competing offer.
An official at Viterra said there is no way to know whether another suitor might come in and top his company’s offer.
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“You can never be sure if anyone else will try to top it, but we feel pretty confident,” said Andrew Muirhead, senior vice-president of corporate development.
Rex McLennan, Viterra’s chief financial officer, added the company has no knowledge of other suitors for ABB, and he expects the proposed takeover to be successful.
The agreement between Viterra and ABB prohibits the Australian company from seeking other proposals and imposes financial penalties against ABB if it changes its mind and recommends a competing bid.
Under the agreement, ABB must pay Viterra $14 million if any ABB director withdraws support for the offer or if ABB’s board recommends a competing proposal.
The agreement also takes into account the possibility that another company may make a bid for Viterra while the ABB takeover is going through the approval process.
Viterra would have to pay ABB $14 million if a majority of ABB’s board withdraws support because of a proposal to take over Viterra that is recommended by Viterra’s board.
If a proposal is made and rejected by Viterra’s board, Viterra would pay $8.8 million.
The takeover deal, which has been unanimously recommended by ABB’s board of directors, offers shareholders a range of options involving cash and/or shares, providing an average of around $9.30 Aus per share. Before the announcement of the takeover bid last month, ABB shares were trading around $7.
Some Australian farm groups, shareholders and market analysts have said Viterra’s offer is too low and undervalues ABB’s growth potential in the deregulated, consolidating Australian grains industry.
If a third party agreed with that assessment, that could trigger a competing bid, said the Australian analyst.
Canadian analysts were generally supportive of the Viterra proposal and several said the new combined company would be in a good position to expand in Australia.
“With a greater proportion of the transaction financed with equity than originally anticipated, we believe there is room on the balance sheet for the combined Viterra/ABB Grain entity to pursue further acquisitions in Australia, such as GrainCorp Ltd.,” said David Newman of National Bank Financial.
GrainCorp is Australia’s largest grain handling company, with revenue of $1.5 billion in 2008.
Such a deal would produce greater savings on the Australian side of the business than would be produced by the Viterra/ABB combination alone, Newman said in a commentary.
In her analysis of the deal, Moore suggested other possible takeover targets of a Viterra-ABB combination would be agribusinesses Elders or Landmark or Ridley Grain, a feed manufacturing company.
