November 1, 2012, 5:48 PM Graincorp Deal May Stir Taste for CBH
By Caroline Henshaw Archer Daniel Midland Co.'s ADM -0.78%appetite for Australian grain handler Graincorp Ltd. GNC.AU -0.90%may prompt potential foreign investors in the nation’s lucrative agriculture sector to look for an even tastier deal out West, analysts say.
Corporate Agriculture Australia’s managing director, Gordon Verrall, believes the Graincorp deal–which some commentators have predicted could be worth more than 3 billion Australian dollars (US$3.1 billion)–may prompt Western Australia’s wheat farmers to consider a sale of their local grain-handling cooperative, CBH Group.
CBH, Australia’s largest wheat, barley and canola exporter with assets of more than A$1.5 billion, may be worth up to 2.5 times as much as its eastern peer because of its substantial international storage, infrastructure and processing network, he estimated.
That would equate to A$6.75 billion, under the terms of U.S.-based ADM’s current offer–or up to A$7.93 billion if they raise the bid to A$13.90 a share, as some analysts are predicting will happen.
“Once farmers in Western Australia understand just how much their cooperative is worth, it will definitely put pressure on CBH to reassess the corporatisation process,” Mr. Verrall said in an interview. “That’ll become more apparent in the next few years, driven by those exiting the industry and those undergoing succession issues, who would appreciate a cash lump sum,” he added.
Established 80 years ago, CBH receives and stores more than 90% of grain produced in Western Australia, the country’s largest grain exporting state. The cooperative, which includes roughly 4,500 growers, owns 20 million metric tons of grain storage and infrastructure, as well as a port capacity of more than 3 million tons.
CBH has also recently expanded into processing, which includes taking a 50% stake in the world’s fourth-largest flour miller, Indonesia-based PT Eastern Pearl Flour Mills, along with several other investments in Malaysia and another mill in Vietnam.
“Without a doubt they’re the jewel in the crown given they’re in the largest individual wheat export market,” said Belinda Moore, a Brisbane-based analyst at RBS Morgans. “If [CBH] was listed on the ASX, it would have gone many years ago.”
Analysts say foreign capital will be vital to meeting the estimated A$1 trillion in investment that Australia’s agriculture industry will need to meet growing world food demand, which the United Nations predicts may by 2050.
Some say it’s only a matter of time before Western Australia’s farmers seek to cash in on the growing appetite of the world’s largest commodity traders–including the so-called ABCD companies, ADM, Bunge, Cargill Inc. and Louis Dreyfus–as Australia’s ageing farm workforce retires and more young people leave the land for better-paid jobs in the cities or mines.
CBH’s acting Chief Executive, David Moroney, said the cooperative had no immediate plans to list, and any future decision to do so would have to come with the backing of at least 75% of growers.
When the topic was put to a vote last year, 96% of members said they wanted to remain as a cooperative.
“We understand the attraction of grain assets in Australia because of our comparative advantages in supplying growing demand for food in Asia,” Mr. Moroney said. “However, we do not see it as inevitable that they will eventually all be owned by multinational commodity trading and processing houses.”
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