A Viterra stock analyst said Canada’s largest grain company would be a less appealing takeover target if it completes a deal to acquire Australia’s ABB Grain Ltd.
David Newman, analyst with National Bank Financial, has speculated in the past that Viterra might be an enticing asset in the grain industry.
“Viterra themselves at some point, maybe in the next several years, could be an interesting target for the likes of a U.S.-based company or even an international company looking to get a stronger Canadian presence,” he said in a January 2009 interview with The Western Producer.
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But if Viterra is successful in its attempt to become a global grain handling powerhouse by taking over ABB Grain, it will become a less enticing target.
“As you become bigger, you become less digestible for larger players,” said Newman.
Grain industry consolidation has been a gradual process of big companies taking over small companies. A Viterra that includes ABB Grain might be too big to swallow, especially in today’s environment of tight credit.
A chart prepared by Viterra shows the combined entity would have a market capitalization of $3.6 billion as of May 29, 2009, compared to $2.2 billion for Viterra alone.
In addition to the difficulty in raising that kind of capital, there would also be a host of competition issues to sort out under such a massive transaction. Newman said some Australian farmers have already expressed dissatisfaction with the potential foreign ownership of one the country’s biggest grain companies.
“If you had another larger player come in and take out Viterra, you would assume the pushback would be that much harder,” he said.
Newman said the new entity created by Viterra’s acquisition of ABB wouldn’t rival the likes of Archer Daniels Midland Company for size but it would be a substantial force in the global grain trade, which is why it is not out of the question that a rival company could attempt to block the deal.
Louis Dreyfus and Cargill both have a substantial presence in Australia, which begs the question of why didn’t they take a run at ABB. Newman thinks the answer is that Viterra needed this asset more than its competitors and was willing to pay a premium for ABB’s outstanding shares.
“Will the other guys step back and take a run that (ABB) is now in play? I wouldn’t discount it. Absolutely, they will probably look at it,” he said.
“There could be a situation where perhaps they view it as a defensive measure to take a run at ABB. Will it happen? We will see between now and September.”
Viterra said it has no knowledge of other suitors for ABB and expects its bid to be successful. ABB would have to pay Viterra $14 million if its board of directors withdraws its support for the Viterra bid and endorsed a competing bid prior to the mid-September deadline for the deal.
