Viterra takeover may be tough sell

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Published: May 28, 2009

Viterra’s takeover bid for ABB Grain Ltd. is receiving a lukewarm reception in the land Down Under.

Viterra has signed an agreement with the board of ABB Grain Ltd. of Australia to buy all of ABB’s outstanding shares for $1.4 billion and take control of the company (all figures in Canadian dollars).

ABB’s directors are unanimously recommending to shareholders that they vote in favour of the deal, barring a superior offer and pending approval by an independent expert.

Australia’s foreign investment review agency and competition commission must also approve the deal.

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However, there are indications the biggest hurdle may be persuading farmer shareholders to buy into the deal:

  • The grains chair of the South Australian Farmers Federation (SAFF) has urged shareholders to reject the agreement as currently structured.
  • Australian market analysts say the deal, which would provide shareholders with roughly $8.20 per share, undervalues the company.
  • Andrew Barr, a producer member of ABB’s board of directors, resigned the same day as the agreement was announced, citing personal reasons.

Taken together, those developments indicate a lack of enthusiasm among some industry stakeholders and observers. The most crucial, and perhaps most difficult, hurdle to overcome will be receiving approval from shareholders, especially the roughly 45 percent who are farmers.

“This takeover is not in the best interests of the South Australian grains industry and the state’s grain growers,” said Michael Schaefer, chair of SAFF’s grain group.

He urged shareholders to reject any attempt to remove the existing 15 percent cap on voting shares held by a single shareholder unless ABB’s monopoly port holdings are broken up. Removing that cap would require 75 percent approval of shares voted.

The deal itself requires approval by at least 50 percent of voting shareholders representing more than 75 percent of the shares voted.

Schaefer also said Viterra’s offer is not high enough, considering ABB’s share price has been undervalued over the past year because of drought and reduced grain handlings and sales.

Neil Simpson, a former deputy chair of the Australian Barley Board (ABB’s predecessor company), said he thinks the real value is closer to $11 to $14 per share.

Market analyst Belinda Moore of ABN-AMRO Morgans said shareholders will be disappointed the price isn’t higher given ABB’s growth potential.

In a commentary entitled “More please, or go away,” she said there would be more potential growth in value for shareholders from ABB consolidating the domestic market rather than getting involved with foreign companies.

Producer politics will be a key issue, she added, especially around the sensitive issue of foreign ownership.

“This is far from a done deal, although board support helps,” Moore said.

Viterra officials expressed confidence the agreement will be approved and closed out by mid-September.

Chief financial officer Rex McLennan said Viterra conducted a thorough evaluation of ABB’s business and is convinced the offer fairly represents the company’s value.

“We believe it’s compelling to ABB’s shareholders and is sufficient to drive this to a successful conclusion,” he said.

Andrew Muirhead, Viterra’s senior vice-president for corporate development, said the fact that ABB’s board of directors unanimously recommended acceptance is a strong endorsement of the offer.

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Adrian Ewins

Saskatoon newsroom

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