Cargill buying AWB commodity business from Agrium
by Josh Sosland
MELBOURNE, AUSTRALIA — Cargill Australia Ltd. has reached an agreement with Agrium under which Cargill will acquire the commodities business Agrium purchased as part of its acquisition of AWB.
Agrium acquired AWB on Dec. 3 and is selling Cargill only the commodity management business, subject to various regulatory approvals.
Included in the acquisition is the former AWB grain marketing and pool operations, international grain trading businesses, grain distribution and storage assets and other international operations.
Cargill said it hopes to complete the acquisition before the end of June 2011.
“AWB’s grain businesses are a great fit with Cargill Australia’s existing grain and commodity trading operations,” said Ralph Selwood, managing director, Cargill Australia. “It helps us meet growing food demand in Asia and around the world, while continuing to give the highest level of customer service to our Australian customers.
“The combined business should accelerate Cargill’s growth and provide value for Australian growers. We are also very keen to have the high level talent and expertise of AWB commodity management business added to our own operations.
“Cargill is committed to marketing Australian farm products for the benefit of all Australian growers. Our overall goal is to provide competitive returns through access to global markets and tools to manage price risk. We want to preserve existing pool options and enhance future pools with new tools for growers.”
According to Agrium, the purchase price to be paid by Cargill will be the net asset value of the acquired businesses at the completion date of the transaction plus a premium. Agrium said if the transaction had occurred and the purchase price had been determined on the basis of the net asset value of the acquired businesses as of Sept. 30, the aggregate of the net proceeds from the sale of the acquired businesses to Cargill, together with the release of working capital from AWB Harvest Finance Ltd., a finance company that supports the ACM business, would have been approximately A$870 million ($859 million).
Agrium said it is considering the sale of other pieces of the commodity management business Cargill is not buying and estimated the value of these businesses at A$55 million ($54.3 million).
“We are pleased to have reached an agreement for the sale of AWB’s commodity management business to Cargill, one of the world’s leading grain handlers and traders,” said Mike Wilson, president and chief executive officer of Agrium. “Agrium indicated from the outset that we would conduct a thorough review of the commodity business with AWB management, and we believe that this is the best course of action for all stakeholders involved. The combination of AWB’s commodity management business with Cargill will be a significant milestone in the evolution of Australia’s grain industry. We believe it will provide dividends for Australian growers through improved market access, knowledge, relationships, and expertise in the world grain trade and as a result will provide a stronger global marketing presence for Australian crops.
“Agrium is committed to ensuring the commodity management divisions operate on a ‘business-as-usual’ basis in the interim and we will continue to focus on the successful integration of Landmark in a timely and effective manner. Agrium is excited to be in the important Australian agriculture retail market and will strive to realize the full strengths and opportunities that the Landmark business presents for the benefit of the Australian grower.”
Landmark Rural Services and commodity management are the two principal businesses of the AWB, and Agrium focused on the benefits of Landmark when it made the acquisition.
Landmark is Australia’s largest distributor of merchandise and fertilizer, with more than 400 locations across Australia and New Zealand. Services offered by Landmark include rural merchandise, crop chemicals, fertilizer, livestock, wool marketing, agronomy services and real estate agency services. The division holds a 50% stake in Hi-Fert, a wholesale fertilizer distribution company currently held for sale, Australian Wool Handlers and RD1, a New Zealand farm supply company.
Cargill began operating in Australia 43 years ago and has 1,500 employees there and in New Zealand. Its operations include 5 manufacturing and processing plants and 12 grower field offices in regional and rural Australia.
The company operates grain and trading as well as beef processing, food ingredients, food manufacturing and flour milling businesses.
Emphasizing Cargill’s “long-term commitment” to Australia, Mr. Selwood identified a number of benefits growers in Australia should expect.
“Combining the AWB commodity management business with Cargill Australia should provide substantial benefits to Australian growers,” he said. “First, it will provide growers with innovative tools to help them manage fluctuations in commodity prices and, in turn, help them manage their cash flow.
“Second, Cargill’s expertise and knowledge in shipping large volumes of commodities should make Australian grain more competitive in more markets.
“Third, with the combination of AWB’s existing market expertise and Cargill's global presence and customer relationships with major grain importers and food companies, Australian grain growers will have broad access to international markets and greater opportunity to increase returns.”