WEST PERTH, AUSTRALIA — The CBH Group said on March 14 its board unanimously rejected a proposal from the Australian Grains Champion (AGC) backed by GrainCorp to privatize the cooperative. The board said the proposal would destroy value for CBH grain grower members and their strategic network, and gives too much power to GrainCorp.

Brad Jones, AGC director, said AGC is not surprised at the CBH board’s decision, noting that the board never engaged in a discussion about the merits of the proposal.

CBH Chairman Wally Newman said the proposal from the AGC lacks transparency, offers no long-term value to Western Australian growers and would deliver a strategic blocking stake in CBH to east coast grain handler and competitor GrainCorp.

“After careful consideration the board has today written to AGC advising that we reject the proposal and will not enter into AGC’s process agreement,” Newman said. “This unsolicited bid would see Western Australian grain growers lose control of CBH’s strategic supply chain and GrainCorp acquire a strategic stake in CBH at a discount rather than a premium.”

“We will not enter into an arrangement that does not recognize the investment of generations of Western Australian farmers. This proposal will ultimately result in increased fees and charges for growers and offers no clear plan for the future,” he said.

GrainCorp, CBH’s publically-owned cousin operating the largest eastern Australian grain storage network, announced on Feb. 17 it had joined a consortium that proposed 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.

CBH had requested further information from AGC on Feb. 24 but on Feb. 26, AGC declined to provide further information.

AGC attempted to address some of CBH’s concerns in March by retracting its demand for exclusivity and an approximate A$16 million ($11,935,149) break fee as part of its proposed process agreement.

Newman said the CBH board had provided Western Australian growers with a detailed explanation as to the reasons for its unequivocal decision to reject the proposal.

In summary, these detail that the AGC proposal:

-Would result in a loss of grower control over CBH’s strategic supply chain;
-Destroys value for CBH grower members;
-Gives too much power to GrainCorp;
-Does not demonstrate a better alternative strategy for CBH or its network; and
-Does not deliver the best outcome for grower members.

Newman said losing grower control of CBH’s critical supply chain to market would be a recipe for higher costs, reduced service and lower profits for growers.

“The AGC proposal would result in significant cash leakage from the CBH Group, in turn this would result in less funds being available for ongoing network investment,” he said. “The GrainCorp-backed proposal offers no long-term value, no guarantees and no real future growth for WA grain growers.”

AGC’s Jones said growers are very disappointed that the CBH board is blocking them from seeing full details of the proposal.

“At grower meetings in the past few weeks, the overwhelming majority of growers have confirmed they want to see the proposal,” Jones said. “The response from growers to date has been extremely encouraging and on this basis we will continue to work with the members of CBH to evaluate all options to ensure they, not the board, have the chance to consider the proposal and vote on its merits.”

Newman said the board had worked with advisors from Deutsche Bank and King & Wood Mallesons in assessing the AGC proposal and determining not to enter into an onerous process agreement for a deal that does not represent good value for local grain growers.

“AGC’s proposed process agreement would also provide GrainCorp with access to confidential information,” he said. “The CBH Group board is acutely aware of our co-operative’s position as a world-class grain business and we could not accept such a blatantly deficient proposal.”

“We have received several inquiries from other interested parties which only serves to highlight the range of options available for our future structure and for our members,” Newman said.

Newman said it was clear WA growers wanted the opportunity to consider how best to structure CBH for the future and the board would ensure this was the focus of ongoing consultation with its members on structure and governance.

“In considering the available options on terms most favorable to our growers, our priority will be to retain the competitive advantage of our modern network,” he said. “We will take the time to properly consult about the options and report back on that consultation by Sept. 30. We are committed to giving growers the final say on the future of CBH.”

CBH will conduct more than 20 meetings with growers in the next six weeks to start this process.