Tuesday, May 5, 2009

Viterra bids to buy ABB and stir-up local players

Speaking to someone who should know better, they introduced me to a brand new term - calling his company “an efficient monopoly”. As a trained economist, it nearly killed me with laughter - it is clear how someone with a vested interest often gets fact and fantasy confused.

One of the problems with that statement is that there is no way to test the efficiency of a monopoly. The move on ABB announced last week by Canadian giant Viterra – if approved – will change the shape of the Australian grains industry and may allow us to test the efficiency of the said “efficient monopoly”.

While there is a long way to go, the price discussed values ABB at $1.6b. Viterra has offered between A$9 and A$9.50 a share in a non-binding bid that includes cash, stock and dividends – 36% more than the pre-offer ABB closing price.

The move may also force the hand of the other major international grain players like Cargill, Glencore and Louis Dreyfus who have struggled to build export market share mainly due to their reluctance to invest in infrastructure on a big scale (without access to Australian wheat exports it didn’t make sense pre-deregulation). They also complain that they are severely hampered by problems with current export access arrangements. They may now chose to invest in competing infrastructure and bring some much needed competition to this sector – the last bastion of qausi monopolization – you beauty.

Speaking to my mate Mike from ProFarmer Canada says ‘Viterra is the 800 lbs gorilla when it comes to grain companies up here...swallowed up the three provincial pools and United Grain Growers over the past dozen years. Today...they have put together an impressive domestic business...likely moving half the grain produced up here’

Viterra is Canada's leading agribusiness, with extensive operations and distribution capabilities across Western Canada, and with operations in the United States, Japan, Singapore and Geneva. The Company is diversified into sales and services of crop inputs and equipment, grain handling and marketing, livestock feed, agri-food processing and financial products.

The deal is by no means done as 75% of individual ABB shareholders must vote in favour of change in the company constitution that caps the shareholding of any individual at 15%.

Viterra will bring a new set of eyes to our industry. It will control the global canola market and will be very significant global barley, wheat and pulse exporters (trading up to 20mmt of grain annually). Having access to southern hemisphere supplies means they will be able to sell all year round – placing our local major exporters at a big disadvantage.

Bring it on!

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