Agrium signs definitive agreement with AWB; deal brings Agrium 400 retail locations

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Agrium Inc. said Aug. 19 that it has entered into a definitive agreement with Australia’s AWB Ltd. to acquire all the shares of AWB at a price of A$1.50 per share (US$1.34), for a total value of A$1.237 billion (US$1.1 billion). It was a quick decision on AWB’s part, as Agrium made the offer Aug. 14 and announced it Aug. 15.

“The combination of Agrium and AWB provides significant strategic and financial benefits to a wide array of stakeholders,” said Agrium President and CEO Mike Wilson. “We are particularly excited about the future of working with AWB employees to reinvest in the business and bring a greater choice of products and services to AWB’s grower customer base.”

Agrium said AWB has advised Agrium that its board considers the Agrium proposal superior to the proposed merger with GrainCorp Ltd. Under AWB’s existing agreement with GrainCorp, AWB is required to provide three clear days’ notice to GrainCorp before changing or withdrawing their recommendation. The waiting period expires Monday, August 23, 2010 (Calgary time), and Agrium anticipates that AWB will recommend the Agrium transaction at that time.

Agrium said its offer represents a 57 percent premium to the trading price of A$0.955 on July 29, 2010 (Australia time), which was just prior to the Graincorp merger announcement. Under the AWB-GrainCorp deal the two companies would merge, with GrainCorp’s shareholders holding 58 percent and AWB’s 42 percent.

Wilson said the transaction will continue Agrium’s strategy of growing its retail business. Agrium sees significant potential to enhance the product and service offerings to the Australian and New Zealand grower, particularly through AWB’s retail Landmark Rural Services division, by utilizing Agrium’s international fertilizer and crop protection sourcing capabilities, while supporting further growth within each division of AWB.

“There are three basic businesses within the AWB: (1) Retail – almost 50 percent of earnings in a typical year; (2) Grain handling and procurement, which is 25-30 percent of earnings; and (3) International grain trading, which is about 20-25 percent of the earnings,” Agrium spokesman Richard Downey told Green Markets. He said within their retail business they have about 400 retail outlets across Australia and are the largest agricultural retailer in the country, and also have an equity position in New Zealand retail as well.

Asked if Agrium really wanted AWB’s grain business, Downey said Agrium wants AWB’s grain handling/procurement business. “We will have to sit down with AWB to determine why they pulled out of talks with potential buyers for the grain trading portion of the business. We will have to discuss the merits of keeping this business.” On Thursday, he said Agrium hasn’t made any decisions on operations specifics at such an early stage in the discussions, and that it would be a bit presumptuous to do so.

In March 2010, AWB announced a nonbinding agreement to sell its AWB Geneva unit to Gavilon LLC and to partner with Gavilon in the formation of a 50-50 joint venture of the AWB Australian Commodity Management business. The deal was to close in June, but never did. The exclusivity period expired as well, leaving the Geneva unit in the acquisition mix for Agrium.

The Rural Services unit reported EBITDA of A$24.9 million on revenues of A$821.3 million for the six months ending March 31, 2010, versus the year-ago A$19 million on revenues of A$802.1 million. For the year ending Sept. 30, 2009, Rural Services had EBITDA of A$39.8 million on sales of A$1.78 billion, compared to 2008’s EBITDA of A$79.8 million on sales of A$1.91 billion.

First-half fertilizer gross profit was A$11.6 million, level with year-ago profits. The company said increased fertilizer market share, particularly on the West Coast, offset a 48 percent drop in fertilizer prices. Crop chemicals reported a first-half EBITDA of A$33.6 million, up from the year-ago A$33.1 million. For the year ending Sept. 30, 2009, fertilizer gross profit was A$24 million.

In addition, AWB holds a 50 percent stake in Australian distributor Hi-Fert, which supplies more than 600 outlets on the East Coast of Australia with fertilizer. The unit has been held for sale, and AWB did not report earnings for it in the first half ending March 31, 2010. For the first half of 2009 it had a loss of A$4.7 million.

Company-wide, AWB reported first-half net profits after tax attributable to members of the parent in the loss column at A$64.8 million on sales of A$2.99 billion, versus the year-ago positive $A8.5 million and A$3.2 billion. EBITDA from continuing businesses was A$58.4 million, down from the year-ago A$93.3 million. For the year ending Sept. 30, 2009, AWB had a loss of A$250.8 million on sales of A$6.7 billion, versus 2008’s positive A$60.3 million on sales of A$6.7 billion.

In May, AWB projected profit before tax for the year ending Sept. 30, 2010, of A$85-$110 million, including improved second-half results for Rural Services, with increased activity and operational improvements.