A Canadian/Australian grain company may seem like an unlikely combination, but it’s a marriage that Mayo Schmidt, president and CEO of Viterra Inc., is convinced will generate profits for producers in both hemispheres.
Schmidt is credited with pulling the Province of Saskatchewan’s near bankrupt Saskatchewan Wheat Pool back from the brink of bankruptcy and rebuilding the historic farmer cooperative into Canada’s largest Agrifood business. In a few short years, Viterra has managed to buy up most of its Western Canadian competition and has been able to diversify sufficiently to provide at least some protection for shareholders from the vagaries of world grain markets.
While Viterra now has operations in the U.S., Japan, Singapore and Geneva, this latest strategic move by Schmidt to acquire Australia’s ABB Grain Ltd. could either prove to be another trump card for Viterra or an investment of the type that almost drove the former co-op into bankruptcy.
While the two companies are located on opposite sides of the world, the primary commodities handled by both — wheat, barley and canola — are a good match, and the increased volumes of these grains should fit nicely with Viterra’s existing marketing, product diversification and research programs.
Also, since both companies have their early roots in former British colonies, they understand one another’s business cultures and legal systems.
But more importantly, being on opposite sides of the world, a merger between the two would offer the combined company considerable diversification, including two harvests a year rather than one.
Michael Iwaniw, now retired managing director of ABB Grain Ltd., outlined the foremost advantages of the merger to producers in May of this year when the directors of the two grain companies announced that they had unanimously approved an Implementation Agreement to combine operations.
"The transaction is consistent with our respective companies’ strategy to expand our global footprint through geographic diversification and investments in value-added processing," Iwaniw said. "The transaction will diversify the new company’s earnings profile, offering counter-seasonal cash flows and a more even distribution of earnings."
Iwaniw set out these strategic advantages:
- Gateway to Asia — the larger company will provide greater exposure to the higher-growth Asian import market, which is becoming increasingly important given its current trend of growing demand.
- Largest export origination capability for core commodities – including dual origin capability, with respective countries maintaining a 37% market share of net exports of wheat, barley and canola.
- Ability to take advantage of logistics arbitrage opportunities.
- Business and geographic diversification — reduces concentration and proportionate earnings in any one geographic location or business sector.
- Provides a more consistent distribution of earnings throughout the year.
- Increased sales — larger, more diverse operations are expected the company’s position within global markets, both from grain origination and marketing, as well as capital markets.
Iwaniw also said the two firms expect the merger to generate synergies worth A$30 million ($25.3 million) annually within a three-year period.
According to Schmidt, Viterra became interested in ABB Grain Ltd. for several reasons, the first being the fact that both grain firms were recognized as leaders in their respective countries and both have a long history of success.
"We also have similar histories of farmer ownership and involvement, and both organizations are in similar and complementary businesses. Even the products that we originate — wheat, barley and canola — for export markets are the same," he said.
Discussions between the two firms began several months prior to May 19, 2009, when a joint implementation agreement was released announcing that Viterra Inc. had proposed to acquire all the issued and outstanding shares in ABB for a mixture of cash and scrip via a scheme of arrangement, which would be subject to shareholder and court approval.
Viterra is Canada’s largest grain handling company with over 99 prairie elevators, with 85% of them capable of loading 50 or 100 grain cars in 24 hours. The company also owns and operates a network of 276 retail locations, providing a variety of products and services to producers including its Proven Seed brand, fertilizer, crop protection products, equipment and agronomic advice.
Viterra also operates 11 special crops plants in Western Canada and two U.S. states, handling a variety of specialized commodities such as field peas, lentils, chickpeas, dry beans, specialty oats, mustard and buckwheat.
The company also owns export terminals in Vancouver and Thunder Bay, and is part of the Prince Rupert terminal Consortium. Viterra’s Cascadia and Pacific grain terminals account for 51% of Canada’s grain loading capacity and are capable of handling 8 million tonnes of grain annually.
ABB operates 111 inland storage facilities and seven export terminals, plus a new Outer Harbour export terminal that is nearing completion.
The company also owns Joe White Maltings, one of the world’s largest producers of malt, with eight plants with a combined annual production capacity of 500,000 tonnes. The company markets supplies to brewers in Singapore, Japan, Thailand, Vietnam, Korea, Indonesia, Cambodia, Papua New Guinea, the Philippines, eastern Russia and Nepal.
ABB has grain marketing and distribution and feed milling operations in New Zealand, and operates Prograin, a container packing operation for grains and other commodities, with five packing facilities and a sixth planned for Sydney, as well as Southern Wharf Services, which manages ABB’s shipping programs and provides ship owners and shippers with bulk shipping services across Australian ports.
In addition, ABB operates New World Grain, a Ukrainian joint venture that collects grain from Ukrainian producers and markets it, and a "Rural Services" division encompassing ABB’s farm retail and ag chemical supply, general merchandise, financial services, wool and livestock activities.
Based in Vancouver, British Columbia, Canada, Leo Quigley writes for a variety of national and international publications specializing in agriculture and transportation. He can be reached at