GrainCorp Joins Investor Consortium to Acquire and Privatize CBH

GrainCorp announced it has joined forces with a consortium led by Australian Grains Champion (AGC) and including Australian superannuation investors under H.R.L. Morrison & Co., to acquire and privatize Australia’s Co-operative Bulk Handling Ltd (CBH).

GrainCorp announced that it will be a cornerstone investor in the deal at the invitation of AGC, contributing as much as A$600 million to the overall final deal. And although the value of CBH would be determined through its initial public offering (IPO), according to Reuters analysts are stating that CBH could be worth upwards of A$3 billion (US$2.1 billion). Given this valuation, GrainCorp’s investment would give it a 20% equity stake in the cooperative.

“Our proposed investment is a good strategic fit for GrainCorp, bearing in mind CBH’s complementary assets and capabilities,” said GrainCorp Managing Director and CEO Mr Mark Palmquist in a company statement. “CBH is an excellent business with a strong position in Australian agriculture. GrainCorp is also a significant Australian agribusiness and, if we can support the growth of Australian agriculture, then we feel a responsibility to participate.”

Dry weather in the eastern coastal region of the country and the negative effects it has had on grain production has prompted GrainCorp to decide to join the AGC proposed takeover of CBH as a means to pursue regional diversification. If successful, the deal would give the company major standing in Western Australia, the country’s largest grain producing region.

For the deal to move forward, CBH’s 4,200 grower members would have to vote with 75% approval, but if approved, the co-op growers would receive up to $1 billion in cash divided into two tranches – an initial payout of $600 million, with an additional $400 million payment upon the company’s listing on the Australian Stock Exchange, according to Farm Weekly.

“This is a considerate amount of money and its injection into the Western Australian grain industry will have significantly positive effect or grain growers, regional communities and the State economy,” former CBH grower director, and AGC director, Clancy Michael told Farm Weekly.

Although Australia is the world’s fourth largest wheat exporting country, it is also has the world’s highest cost of production. However, RBS Morgans analyst, Belinda Moore told Reuters, “A combined GrainCorp and CBH would be an Australian champion,” adding that the resulting scale of the operation would lend it leverage on international markets.

ACG director, Clancy Michael summed up his motivation for the deal to Reuters stating, “We need to move on, we need to modernize.”