Ann: AWB and Gavilon sign Memorandum of Understan, page-9

re: Ann: AWB and Gavilon sign Memorandum of U... http://www.agrimoney.com/news/awb-snares-soros-backed-gavilon-for-grains-deal---1526.html

"11:05 UK, 30th March 2010, by Agrimoney.com


AWB snares Soros-backed Gavilon for grains deal



AWB has signed up Gavilon, the Soros-backed commodities giant, as a partner for its flagging Australian grains business, six months after a deal between the two groups was first rumoured.

US-based Gavilon has agreed outline terms over paying book value, plus an unspecified premium, for AWB's domestic commodity management business, with a final deal expected by June.

AWB in September revealed it was in "preliminary talks" with an unnamed investor, which was rumoured to be Gavilon, over a tie-up at its domestic grains business.

However, reports in December said that Gavilon - the energy, fertilizer and farm commodities group, whose shareholders include George Soros's Soros Fund Management - had walked away from a deal because of a disagreement over price.

Growing competition

The deal, which will also see Gavilon buy AWB's Geneva-based business, comes amid a shake-up of Australia's grain trading sector after AWB lost its monopoly over wheat exports two years ago.

Deregulation has prompted the likes of America's Cargill, Singapore-based Olam and Germany's Toepfer to muscle in on the country, with Canada's Viterra last year acquiring Australian merchant ABB Grain.

Earlier this month, Emerald, a small player, sold a 50% stake to Sumitomo Corporation, the Japanese trading giant.

Gordon Davis, the AWB chief executive, said that the Gavilon deal would "enhance the competitive position" of the commodities management business and "provide a platform for further growth".

Greg Heckman, the Gavilon chief executive, said the deal represented an "excellent opportunity" for the Nebraska-based group to expand its footprint, which already extends through the Americas and into Asia, "in a meaningful way".

Structural change?

The inconsistent performance of AWB's grain marketing business has long been of concern to investors.

However, a profits warning two weeks ago, blamed on the division's weaker margins and on waning volatility in grain markets, sparking concerns over whether the unit would this time not recover, with competition so strong.

"The main issue raised by the [warning] is whether it reflects structural change in the domestic market and AWB's position in that market, or whether it is part of the normal volatility in trading earnings," Credit Suisse analyst said.

A swap by AWB of a stake in such a volatile earnings stream, to which investors attributed a discount, for cash with which to reduce debt would "probably be an advantageous trade-off", the bank added.

Mr Davis added that the Gavilon deal would help AWB achieve an aim of becoming "a simpler lower risk Australian based regional agribusiness with significant scale, scope and more sustainable earnings".

AWB shares closed up 6.2% at Aus$0.95 in Sydney."