Aiming to cash in on a global agribusiness boom, Agrium Inc. is offering $1.16-billion for Australia's AWB Ltd., triggering a bidding war for the wheat exporter and fertilizer supplier.
Agrium's all-cash offer topped a competing $800-million stock bid for AWB by Australian rival GrainCorp. Ltd. last month and fuelled expectations that other agribusiness companies could join in the bidding.
The battle for AWB comes at a time when prices for agriculture commodities are soaring due to weather woes and worries about world food shortages. Russian drought and fires have cut wheat production by about one-third, which led to a ban of exports and sent world grain prices soaring. Floods in the Canadian Prairies have further crimped global supply this year, adding to the price hikes.
Agrium chief executive officer Michael Wilson said AWB is "another step in our journey of becoming the largest global crop input company," strengthening Agrium's chemical, seed and fertilizer business.
"We are in the feed-the-world business," Mr. Wilson said in an interview. "Do we basically believe commodities are going to be strong going forward? Yes we do. The rise in wheat prices helps that.
"This is the right company at the right time, one that we can lever our strengths off from a retail, wholesale and advanced technologies point of view and it gives us a good platform to grow," Mr. Wilson added.
However, Agrium's proposal isn't expected to come without a fight.
"We would not be surprised if there were additional bids or if other companies joined the fray," UBS analyst Brian MacArthur said in a research note Monday, citing Calgary-based Viterra Inc. as a potential suitor, given its similar businesses.
Viterra declined comment on the speculation Monday.
In response to Agrium's offer, valued at $1.40 per share ($1.50 Australian), GrainCorp said its AWB proposal " remains on foot."
AWB, meanwhile, said it's open to negotiations with Agrium, but warned shareholders the offer is conditional and "may not lead to a definitive arrangement."
Agrium's offer is a 57-per-cent premium to AWB's trading price on July 29, before it agreed to merge with GrainCorp.
If the bidding for AWB escalates, Agrium appears well positioned with $805-million (U.S.) in cash on its books, analysts say.
The company is cranking up its acquisition efforts again after backing off from a $5.5-billion (Canadian) hostile bid to buy fertilizer concern CF Industries earlier this year.
"Agrium has an admirable, successful track record of patiently and prudently bidding to take over targets," Salman Partners analyst Raymond Goldie said.
"In the past they've been accretive to earnings and value, or saying during the bidding process, 'Hey, this has become too expensive,' and just waking away. A lot of people don't have that discipline."
Australia has become fertile ground for agribusiness firms after new grain export laws were put in place two years ago, spurring majors such as Cargill Inc., Glencore International AG and Bunge Corp. to move in. Tougher competition arose after AWB lost its monopoly on wheat exports from Australia.
Last year, Viterra paid $1.4-billion to take over Australia's ABB Grain Ltd., after ABB and AWB ended talks of a possible merger.
Agrium said AWB is one in a continued series of acquisitions it plans to pursue in the months ahead.
"If we get this it will be (deal) No. 11 in five years, and I don't see why we should stop as long as we are generating shareholder value and we have support of our shareholders we will do this," Mr. Wilson said Monday. Agrium completed a string of acquisitions in recent years totalling about $3.4 billion (U.S.).
Agrium had vowed to not overpay for CF, and its offer was contingent on CF dropping its own takeover bid for Iowa-based fertilizer producer Terra Industries Inc. CF then bought Terra for $4.7-billion, trumping a rival offer from Norwegian rival Yara International ASA.
AWB has two units; Landmark Rural Services, Australia's largest distributor of fertilizer and farm merchandise, and Commodity Management, which includes commodity trading and logistics services.
Mike Wilson, CEO of Calgary-based Agrium Inc., has completed a number of acquisitions valued at about $3.4-billion (U.S.) in the past five years. In May, he said Agrium was seeking new targets after its failed $5.4-billion bid for American rival CF Industries Holdings Inc. Here's a look at some of Agrium's notable deals:
2006: Pays close to $400-million for Royster-Clark Ltd., giving Agrium a strong foothold in fertilizer distribution in the U.S.
2006: Acquires Spectrum Brand's Nu-Gro fertilizer technology and Canadian professional products businesses for $86-million.
2006: Pays $74.5-million for Alabama-based Pursell Technologies Inc., maker of controlled release fertilizers.
2007: Pays Archer Daniels Midland $60-million for 32 stores in Kansas and Oklahoma.
2008: Pays $2.1-billion for Colorado-based United Agri Products, the biggest retailer of fertilizer, chemicals and seeds to the U.S. farming industry. The deal made Agrium the largest retailer in its category in the U.S.
Sources: Agrium Inc. website; Reuters; Bloomberg