Agrium Inc. is a step closer to buying a foothold in the Australian agricultural market after it signed a definitive agreement to take over AWB Ltd.
While the deal isn't of the same size and scope as the Australia/Canada agricultural investment that is coming in the other direction - BHP Billiton Ltd.'s blockbuster proposal to take over Potash Corp. of Saskatchewan Inc. - Agrium's move could place it in a position to expand in the burgeoning Asian market.
Agrium, which launched its $1.16-billion cash bid less than a week ago, has now finished its due diligence and persuaded the Melbourne-based target to support Agrium's offer over an earlier proposal from GrainCorp Ltd., a rival Australian firm.
The earlier share-swap deal with GrainCorp. spelled out that AWB had to give three days' notice before withdrawing its now-outdated recommendation for that merger, so the AWB board can't come out fully in favour of Agrium's offer until Monday.
But AWB's board has acknowledged that Agrium's offer is superior and said it will throw its weight behind the new deal. If Australian government competition and antitrust bodies agree to the arrangement, the acquisition could close by the late fall.
AWB was formerly the Australian Wheat Board, which once had a monopoly on that country's bulk wheat exports.
For Agrium, already a giant fertilizer producer and retailer, the successful takeover would give it ownership of Australia's largest distributor of fertilizer and farm merchandise, AWB's Landmark Rural Services.
Another AWB unit, Commodity Management, is the grain handling and marketing division, and analysts suggest it could be the jumping off point for future Agrium expansion in Asia.
When the Agrium bid was first announced on Monday, chief executive officer Mike Wilson said he saw Australia as a potential regional hub for the Asia-Pacific region and "the basis for additional future expansion in the region."
It is a big step for Agrium, which has been an aggressive acquisitor in recent years, but mostly in North America. In May it failed in its attempt to buy U.S. rival CF Industries Holding Inc., but the company has racked up more than $3-billion worth of acquisitions in five years.
Analyst Raymond Goldie of Salman Partners said in a report Friday that he has confidence in Agrium's "ability to recognize targets that can add value," and in this case he expects the company "to execute a successful merger and integration of the target."
While most analysts don't think GrainCorp will come back with a sweetened offer, there is still a chance that another bidder might try to jump in with a better price.
One potential bidder is Regina-based Viterra Corp. (the former Saskatchewan Wheat Pool.). Last year it bought the Australian grain handler and processor ABB Grain Ltd., so it already has a foothold in that county. The company has not given any comment on the Agrium-AWB situation.
One analyst has suggested that Viterra might consider negotiating some kind of asset swap with Agrium in order to get hold of AWB's grain handing business which would mesh well with Viterra's other Australian operations.
Still, the Agrium-AWB deal is not yet complete, so any future asset shuffling is a way off yet.
Belinda Moore, a Brisbane-based analyst at RBS Morgans, told Bloomberg News that another bid can't be ruled out "but Agrium is paying a fair and reasonable price and it may be hard for others to beat it."
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