WEST PERTH, AUSTRALIA —The CBH Group, a farmer owned cooperative operating a grain network in Western Australia, announced on Feb. 24 that it has issued a letter to the Australian Grains Champions (AGC) calling for more detail on their proposal to corporatize the cooperative.
GrainCorp, CBH’s publically owned cousin operating the largest eastern Australian grain storage network, announced on Feb. 17 it had joined a consortium that is proposing privatization of CBH Group and listing the 83-year-old cooperative on the Australian Stock Exchange.
The proposal, which is backed by GrainCorp and H.R.L. Morrison, offers growers a cash payment and shares in a corporatized CBH. AGC presented the proposal to the board of CBH with a request that it be put to CBH’s grower members.
Wally Newman, CBH chairman, said the proposal given to CBH does not provide the board with sufficient information to complete an assessment of whether the AGC proposal is in the best interests of CBH members.
“The board has worked with external advisors and CBH’s senior management team over the last week to assess the proposal,” he said. “We are clear about our obligation to growers and believe it’s fair and reasonable to request this information so that we can continue to assess whether this proposal is in the best interest of WA grain growers, in good faith and with an open mind.”
“Once we have received adequate information, we can continue our evaluation of what this proposal means for growers,” Newman said. “Much of the plan is lacking detail.”
GrainCorp’s Mark Palmquist said at the time of the Feb. 17 announcement that the decision to proceed is with Western Australian growers.
“Our proposed investment is a good strategic fit for GrainCorp, bearing in mind CBH’s complementary assets and capabilities. 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,” he said. “We believe we offer significant value to CBH through our experience as a listed agribusiness, our complementary operations and grain processing capabilities.”
CBH’s value would be determined through an initial public offering (IPO), GrainCorp said, but analysts have valued the Western Australian cooperative at as much as A$3 billion ($2.1 billion). GrainCorp said it would be a cornerstone investor, putting up as much as A$600 million. That would be transferred to an equity stake in CBH once it is listed and give GrainCorp a 20% stake in CBH if it was valued at A$3 billion.
“We are yet to see any detail around the proposed AGC ‘Network Re-Shape Plan’, the AGC ‘Five Year Growth Plan’, the ‘Future Farming Fund’ and ‘Grower Loyalty Investment Scheme’,” said Newman. “For the sake of growers we need to have some clarity on the long-term storage, handling and transport charges beyond the proposed five year CPI cap on charges, will they go up dramatically after that point?”
“The composition of the board of directors of AGC is not clear and there appears to be no mechanism by which WA grain growers are guaranteed representation at board level. There must be an indicative view of value and associated implications for CBH grower shareholders in terms of value of shareholding,” said Newman.
The CBH board is focused on the areas of value leakage, the loss of grower control, the lack of detail offered and the blocking stake offered to GrainCorp at a discount.
“We still don’t know what percentage of AGC will be owned by CBH shareholders, GrainCorp, H.R.L Morrison and the AGC founders.” Newman said. “The proportion of grower ownership and the value for grower shares would remain an unknown until after the actual eventual listing of AGC takes place, this is vital detail that we must have before we can continue with an assessment of the AGC proposal.”
If CBH agrees to put the offer to its 4,200 farmer owners, the proposal would require at least 75% support to move forward. CBH’s farmer owners would receive shares in the AGC consortium and A$600 million in cash.
AGC would be the holding company of CBH and apply for a listing on the Australian Stock Exchange. Leading up to the IPO, growers would have the opportunity to sell up to A$400 million in additional shares during the IPO process, or hold onto their shares.
The deal would also need approval by the Australian Competition and Consumer Commission and other regulatory groups.
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