SYDNEY, AUSTRALIA — GrainCorp Limited and AWB Limited announced on July 30 that they have entered into a merger implementation deed (MID) under which GrainCorp will merge with AWB.

The merger will create one of Australia’s largest diversified agribusinesses, operating in the grains, merchandise, fertilizer and livestock sectors and the world’s fourth largest commercial malt producer. Combined company market capitalization is estimated at over A$2 billion. Directors of both companies unanimously support the proposal.

GrainCorp will issue to AWB shareholders one GrainCorp share for every 5.75 AWB shares they own subject to an AWB shareholder vote. The transaction will result in a nil premium merger with the exchange ratio based on the volume weighted average prices of shares in each company over the last six months.

GrainCorp’s shareholders will hold 58%, and AWB shareholders 42%, of the merged company.

The directors of AWB will commission an independent expert’s report to determine whether the scheme is in the best interests of AWB shareholders.

Subject to the independent expert confirming that the scheme is in the best interests of shareholders and absent a superior proposal, each of the directors of AWB will recommend that AWB shareholders vote in favor of the scheme and the removal of the 10% shareholder cap to permit the scheme, and have indicated they intend to vote in favor of the scheme and the shareholder cap removal in relation to their own shares.

The necessary regulatory processes are expected to be completed during the second half of 2010.

AWB has agreed to customary obligations that limit its ability to engage with third parties on a competing proposal, although these obligations are subject to fiduciary exceptions.

GrainCorp Chairman Don Taylor said, "The merged company will have the scale to compete more effectively against the large global grain companies now competing domestically, and exporting grain from Australia, and places us in a strong position to take advantage of the growing food demand from Asia, the Middle East and North Africa.

"The merged company will be one of the largest rural focused businesses in the ASX 100. Australian grain growers will benefit from stronger relationships with international buyers and a wider range of grain marketing alternatives, continued operation of AWB pools, finance and rural merchandising services. The new company will be a significant grain exporter, a leading Australian flour miller and the world’s fourth largest commercial malt producer."

AWB Chairman Peter Polson said "The merger will deliver synergies in excess of A$40 million per annum. There are obvious benefits in merging the two head offices and by cutting duplication throughout the organization.

"The business and geographic diversification that results from combining these two companies delivers a more stable earnings profile for shareholders, with the potential for increased revenues and reduced earnings risk across the company’s operations."

Under the merger proposal, Polson will become chairman of the new company and Taylor will become deputy chairman. Alison Watkins, managing director of GrainCorp, would become managing director. The chief financial officer (CFO) of AWB, Philip Gentry, will become CFO of the merged entity. The two boards will merge.

The senior management team of the combined company will be drawn from the current management teams of both GrainCorp and AWB.

The merged entity will operate as GrainCorp Limited. The corporate head office will be located in Sydney, Australia, and business functions shared across the locations where best suited.

The intention, in the absence of unforeseen circumstances, is for GrainCorp to pay a final fully franked dividend of approximately A10¢ per share, to which AWB shareholders will be entitled following implementation of the scheme, and a A5¢ per share fully franked special dividend to all shareholders of the merged company.

Subject to the Supreme Court making appropriate orders, it is currently expected that AWB shareholders will be sent scheme documentation in September. This will contain the basis for the AWB board’s recommendation and an independent expert’s report.

AWB shareholders will vote at a scheme meeting, expected to be held in late 2010. If the court makes an order approving the scheme, the scheme will become effective on the date determined by the court, and GrainCorp and AWB will become bound to implement the scheme.

The AWB Board has considered a range of alternative proposals, including the previously announced commodities transaction with Gavilon LLC, however has concluded that the proposed merger with GrainCorp creates more value for shareholders. Should a superior proposal emerge, the AWB board would consider it on its merits and advise shareholders accordingly.

The board reviewed the company’s guidance and now anticipates that its profit before tax and significant items (PBT) for continuing businesses for the full year ending Sept. 30 will be within the range of A$75 million to A$95 million compared to previous guidance of A$85 million to A$110 million.