GrainCorp in $1b move on CBH

A statement from GrainCorp today confirmed the publicly listed company will join the Australian Grains Champion (AGC) consortium that’s seeking to offer up to $1 billion to WA growers for shares in the co-op.

News of the AGC bid was unveiled earlier this year sparking a renewed and vigorous debate amongst WA grower members about the co-operative’s future structure.

GrainCorp said the consortium was led by AGC and included H.R.L. Morrison & Co, acting on behalf of underlying Australian superannuation investors.

GrainCorp said it was approached by AGC inviting them to support its proposal as a cornerstone investor.

“Australian Grains Champion is presenting the proposal to the Board of CBH with a request that it be put to CBH’s grower members,” the statement said.

GrainCorp said the proposal was intended to involve the acquisition by AGC of 100 per cent shares in CBH, subsequent to a successful CBH grower member vote.

To change its constitution and therefore structure, CBH requires a 75pc vote from its 4200 grower-members.

If the 75pc vote is reached on the AGC plan, a $600 million cash payment would be made to CBH grower members - the statement said - paid upon satisfaction of the proposal conditions and a commitment to progress a public listing.

H.R.L. Morrison & Co investing on behalf of underlying Australian superannuation investors has agreed to subscribe $300m and GrainCorp the other $300m.

Other aspects of the complex proposed deal would see GrainCorp entitled to appoint a director to the AGC Board.

A statement from AGC said the proposal to publicly list CBH would see its grower-members have up to $1b cash in two tranches of a guaranteed $600m of cash plus up to $400m at the time of listing on the ASX.

AGC said it had requested the CBH Board to enter into the process agreement by Friday March 18, 2016 to commence a course of action that will ultimately result in the proposal being put to a CBH member vote.

GrainCorp Managing Director and CEO Mark Palmquist said his company saw “enormous strategic merit” in the AGC proposal.

“Our willingness to support it is based on a view that the investment presents a compelling opportunity for Western Australian growers, while also delivering opportunity for CBH, GrainCorp shareholders and Australian agriculture more broadly,” he said.

“Importantly, the decision to proceed is ultimately one for Western Australian growers and we respect that process.

“Our proposed investment is a good strategic fit for GrainCorp, bearing in mind CBH’s complementary assets and capabilities.”

Mr Palmquist said CBH was an excellent business with a strong position in Australian agriculture while GrainCorp was also a significant Australian agribusiness.

“If we can support the growth of Australian agriculture, then we feel a responsibility to participate,” he said.

“We believe we offer significant value to CBH through our experience as a listed agribusiness, our complementary operations and grain processing capabilities.

“Our participation in this Proposal potentially gives us an opportunity to contribute to CBH’s growth and success in a meaningful way in the future.”

Former CBH grower-director and AGC proponent Clancy Michael said the proposal would release a large amount of cash and shares directly to CBH members and create a true Australian grains champion.

“This is a considerable amount of money and its injection into the Western Australian grains industry will have significant positive effects for grain growers, regional communities and the State economy,” he said.

“It is a once-in-a-lifetime opportunity for farming families, because investment of this scale is difficult to attract.

“Now is the time to protect CBH’s future, deliver an affordable network reshape strategy, equip CBH to be more competitive and unlock the equity growers have built in CBH.”

Mr Michael said farmers could use funds form the deal to expand farms, pay down debt, facilitate farm succession, implement innovation or fund on-farm or off-farm investment.

Former CBH independent board member Samantha Tough who quit the board in late 2014 has also been connected to the AGC movement as a strategy director.

Grower directors include Sue Middleton; Clancy Michael and Brad Jones and John Corbett is finance director.

Earlier this month CBH Chair Wally Newman said when CBH grower shareholders assess the AGC proposal they need to, “beware of the free lunch”.

“Changing the CBH structure and corporatising the co-op may provide huge benefits for maybe two or three years,” he said.

“But all of the evidence indicates that, anywhere in the world, when a grower owned supply chain has been corporatised, in as little as five years, the growers have no control, once it’s owned by the multinationals.

“And it’s the most expensive equity they’ll ever get their hands on because within five to seven years whoever owns that supply chain will want their money back

“Anyone looking to take on CBH and to corporatise it will want their money back on that investment, just as CBH would and if you’re staying in farming you’ll be paying for it – not for five years but forever.”

When the plan was unveiled, GrainGrowers Chair and NSW farmer John Eastburn also warned about the dangers of corporatisation for grains co-operatives.

"There are a lot of eastern growers not happy with GrainCorp, in the sense that it actually became a non-grower business and the infrastructure seems to have not had the investment put in it," Mr Eastburn said.

“I really recommend growers in the west have a look at what happened with the GrainCorp situation, what's happened in the ABB situation and have a long think about it.”