Viterra Inc . becomes one of the world's largest grain handlers with its takeover of ABB Grain Ltd , after shareholders of the Australian company approved the A$1.6-billion ($1.5-billion Canadian) deal on Wednesday.
The acquisition, if approved by an Australian court on Thursday, would give Canada's Viterra the global footprint that could make it more attractive to investors, but also carries risk for the former farmer co-operative, Wellington West Capital Markets analyst Robert Winslow said.
By acquiring ABB, Viterra moves from a top-10 grain-handling company into the top five, Winslow said, entering the ring against heavyweights like Cargill and Archer Daniels Midland.
"If they can show success in the digestion of this transaction, then I think they move on and try to get even bigger," Mr. Winslow said in an interview.
The takeover allows Viterra to source grain from different hemispheres, offering it a considerable hedge against bad weather. Risk comes from expanding into a region that's geographically and culturally distant from its Canadian Prairie base, Mr. Winslow said.
"I think they'll be able to make it work," he said. "This is long-term value creation and it makes sense, but you can't ignore these types of risk."
Viterra stock was up 2.2 per cent at $9.37 on the Toronto Stock Exchange early Wednesday afternoon.
The transaction will, on balance, "de-risk the business," Viterra Chief Executive Mayo Schmidt said on a conference call with reporters, by giving it a "shock absorber" against bad weather.
Viterra will also pause to integrate ABB before seeking new acquisitions, Mr. Schmidt said. The company will have $350- to $750-million in capital available for acquisitions, depending on which option of cash and shares ABB shareholders select, he said.
Investment bank UBS said in a research note that Viterra might now look at add on acquisitions in the agribusiness sector such as Elders Ltd's rural services division or AWB Ltd's Landmark unit.
"There are areas of interest throughout Southeast Asia," Mr. Schmidt added. "There's no shortage of opportunities. The key is the discipline to move methodically through them and of course act at the appropriate time."
The purchase of ABB will potentially boost earnings per share by 4 to 13 cents, said National Bank Financial analyst David Newman in a note to clients.
Mr. Newman is maintaining his $10.50 price target.
Mr. Schmidt said the deal will add to earnings in the first year and smooth out profits across the year, since Viterra will now handle crops from different global regions.
The combined business could secure more grain for customers in Southeast Asia, a key destination for ABB's Australian wheat and barley exports, as well as in the Indian subcontinent, another key target market, Mr. Schmidt said.
"As far as markets where ABB may not have had access, where Viterra may not have had access, we're going to be very inquisitive and we're interested in developing a strategy for those markets," he told reporters in Adelaide after the shareholder vote.Report Typo/Error
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