Grain industry analysts are not surprised by rumours that Viterra is interested in acquiring another major Australian grain company.
A columnist inThe Australiannewspaper wrote an opinion piece last week stating that there is “increasing chatter” that GrainCorp is next on Viterra’s to-do list.
GrainCorp owns more than 250 grain elevators in eastern Australia and seven bulk grain export terminals. It is expected to handle a record 14.5 million tonnes of grain this year.
The company attempted to buy AWB Ltd., the former Australian Wheat Board, last year but lost out to Canadian fertilizer company Agrium Inc.
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Now rumours have surfaced that GrainCorp is working with Credit Suisse “amid interest from offshore rivals.”
“Viterra is believed to be keen to do the deal at some stage,” said columnist Ahmed Nabila, noting that the Canadian grain company would be attracted by GrainCorp’s proximity to growing Asian demand.
A Canadian grain industry analyst who requested anonymity isn’t surprised that Viterra has further interest in the Australian market.
“The fact that they would be rumoured to be going after one of the two (major Australian grain) companies that are left for the taking makes perfect sense, to be honest,” he said.
Viterra completed its $1.4 billion acquisition of ABB Grain Ltd. in September of 2009.
At the time, ABB was Australia’s largest barley exporter and second largest wheat supplier. It owned 111 inland storage facilities and seven export terminals.
The analyst said Viterra officials told him that the first Australian acquisition would be more expensive than any that followed because of the synergies that could take place with subsequent purchases.
“I would be surprised if they didn’t make a move further into Australia,” he said.
Viterra would likely raise the money to make an Australian acquisition through a share offering.
Robert Winslow, an investment analyst with Wellington West Capital Markets Inc., said Viterra has made it clear it is looking for additional assets in North America and Australia.
Viterra wants to geographically diversify its assets to avoid the risk of having all of its production in one climate zone.
There’s nothing more diverse than buying a business on the other side of the globe.
“Simply put, yes it would make sense for them to add some more assets down there,” said Winslow.
Viterra chief executive officer Mayo Schmidt recently told investors at a BMO Capital Markets conference in New York that Australia is one of three priority markets for the company.
He said Australia is under “consolidation mode” as it transitions from its history of grain export monopolies and co-operatives. The company would participate in that consolidation “over time” as opportunities arose, he added.
However, the company’s focus is now on integrating the eight assets it has acquired over the last year, including ABB.
Canada is another priority market, but the company is constrained there by its already dominant position, controlling slightly less than 50 percent of market share and 50 to 60 percent of export capacity.
The United States is another priority market.
“The U.S. is particularly of interest to us because continentally our transportation systems and networks flow north and south and for many, many years we’ve been major suppliers to the U.S.,” said Schmidt.
The company also has growing interest in the Black Sea region, India and China.
“It’s a rich environment for opportunities we see over the next 10 years,” Schmidt said.
