There’s a new multinational corporation operating in the world’s grain industry.
Viterra successfully completed its takeover of ABB Grain Ltd. last week, creating a new company with a dominant market position in two major grain producing countries.
Shareholders of the Australian company ABB voted strongly in favour of the $1.4 billion transaction at a Sept. 9 meeting in Adelaide, Australia.
The following day, the Federal Court of Australia approved the deal, clearing the way for Viterra to take control of ABB Sept. 24.
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Viterra chief executive officer Mayo Schmidt said combining the two companies will create a financially strong firm with excellent access to grain supplies and markets.
“We come out of this in very, very good shape, very strong,” he said in a conference call from Australia.
“We believe our two companies have the opportunity to build long-term prosperity in the agricultural industry in both Canada and Australia.”
The new company will have a strong balance sheet, access to significant volumes of grain throughout the year and increased reach into global grain markets, in particular the fast-growing and lucrative markets in Asia.
The deal was supported by 84 percent of ABB shares voted, well above the 75 percent required to pass, and by 60 percent of shareholders, above the 50 percent required.
The shareholders also voted 83 percent to lift the 15 percent limit on the amount of ABB share capital that one shareholder can own.
Integration underway
Schmidt said the first priorities for the new company will focus on integrating the two firms’ operations, no easy task given the physical distances involved, and maintaining strong earnings and share prices.
The new company will take in $350 to $800 million in new cash from the transaction, which could potentially be used to finance further acquisitions.
Schmidt said the company will continue to look for new opportunities to expand its business, but nothing will happen soon.
“We are in the process of letting things settle,” he said. “There will be some period of time before we look at other opportunities.”
Another priority is to find a new managing director for the Australian side of the operation, which includes 1,200 employees, 111 country grain facilities, seven export terminals and a major malting company, along with farm input sales centres and livestock operations.
In the interim, Viterra chief operating officer Fran Malecha will be in Australia to run the new organization.
David Newman, a grain market analyst with National Bank Financial, said Viterra “paid well” for ABB and the transaction carries with it some risks, but overall the deal offers the prospect of healthy long-term growth.
“This should allow the company to gain traction and market share with customers in end markets,” he said.
In a commentary published following the deal’s approval, Newman identified a number of benefits and limitations of the takeover.
- Australia and Canada combined account for 37 percent of world exports of wheat, barley and canola, ahead of the United States at 33 percent.
- World grain market fundamentals remain positive with a growing world population and demand and low grain stocks.
- Viterra will have greater access to burgeoning Asian grain markets because of Australia’s geographical proximity.
- Transportation costs will be lower in Australia than in Canada, and ocean freight to Asia will be lower.
- Concerns that Viterra may have overpaid for ABB, given earning projections. The offer worked out to an average of $9.30 Aus in cash, shares and dividends, compared with $7 a share when news of the deal was made public April 29.
- Operating a company across such far distances could pose challenges for management and integration.
- Recurring droughts in Australia could present problems.
Newman forecast the new company will record earnings before interest, taxes, depreciation and amortization of $616.8 million in 2009-10, made up of $189.8 million from ABB, $400 million from Viterra and $27 million in savings gained from the combination.
