What is CBH worth to growers?

THIS story is one of those hypothetical ones reliant on a few "what ifs", some staunch "buts" and several crystal-balling "maybes" thrown in for good measure.

But the rough, back of an envelope figures are worth considering, in light of CBH’s ongoing board rifts and heading into next week’s meeting where Chairman Neil Wandel is seeking re-election but facing a challenge from dissenting grower directors, dissatisfied with his performance.

A few years back, CBH’s co-op directors did their best to stave off an informal approach from ABB that was reportedly worth about $2 billion at the time and would have required corporatising the State’s grain handling and marketing giant to issue growers with shares.

Why are we talking about this now?

Well a number of growers have highlighted the fact that in the same edition of the Farm Weekly where the CBH board spat was reported earlier this month, those pages also carried intriguing news about the current $6 billion take-over bid from Swiss multinational grain trader Glencore for Canada’s Viterra.

One concerned grower said Viterra acquired ABB a couple of years back, which was once a grower owned and controlled entity in South Australia and those shareholders are now about to potentially reap massive rewards from the Glencore purchase which could effectively could see their original $2 share now potentially worth about $3 to $ 4 million.

And the grower was highly distressed to know that WA growers are not in the same enviable position to cash in on CBH’s value but instead they are walking off the land with virtually nothing to show for years of blood, sweat and tears.

In crunching the recent Glencore offer for Viterra, it’s understood the South Australian component of the business was valued at about $3 billion.

A rough analysis of CBH’s current “enterprise” value including its Asian flour milling operations through Interflour, rather than its book value, would see the co-op valued at about $4 billion.

Assuming the ABB deal went through and the current Glencore deal is sealed, the value of $4 billion to an estimated 4000 shareholders – rather than their current $2 share – would be worth at least $1 million each.

But if the share value or equity distribution was calculated according to patronage, based on the volume of grain delivered to CBH over the past decade, as was proposed more than a decade ago when a listing offer was presented to CBH shareholders but rejected, mid-range growers could be receiving up to $4 million each, and some bigger growers could earn far more.

But in stark contrast, banks have tightened lending to growers with the compound effects of several poor seasons kicking in and they are now being forced off the land in droves.

Industry officials say if not for the support of banks going into the 2011-12 season, WA would have only produced half of the 15 million tonnes record grain crop delivered to CBH last harvest.

Banks will look at the books a lot harder this year and expect a lot more debt to be paid down.

Foreign investors are also charging in to pick at the carcass of destitute growers, not just the small ones but the big ones too.

They are spending millions of dollars buying up local farm land in secret deals, waving around massive funding sources, linked to the powerful sovereign or government enterprises, of those countries.

Meanwhile, the value of CBH which those growers have helped to build up over many years is being handed over for virtually nothing, while those farmers walk away with “stuff all”.

But if CBH was corporatised, those shareholders would now be watching their share price climbing on the back of the Viterra take-over and have the potential to realise that value and ease their exit pain.

And consider this - in 1990 CBH had about 10,500 shareholders and they now have about 4000 who would qualify for shares or script in any take-over deal.

In ten to twenty years time, the number of active growers in WA using CBH will probably be halved again.

But by then, the numbers will be too strong to say no to another corporatisation offer, as the enraged grower suggested.

“But let’s face it, that’s not the mood of the growers they want to retain the co-op structure and unfortunately they are stuck in this ideological, communist approach,” he said.

One shareholder said the co-operative’s structural debate was well and truly settled with corporatisation “dead in the water”.

But growers still had concerns over board divisions and wanted to know how their $1.5 billion company was being managed and if the current hostile board environment was damaging the business badly and eroding value.

That grower said they understood that in supporting CBH’s position as a co-operative, to reward active members by re-distributing profits in the business rather than externally, it removed the potential realisation of CBH’s share value.

But unless competition in the local market existed to tackle a multinational entrant like Glencore or Viterra, taking over CBH, which can be described as a natural monopoly rather than a legislated one, growers would relinquish control and be at the mercy of that monopoly.

The shareholder said growers at least had control over CBH through the annual democratic grower elections but questioned if they were currently appointing the right ones.

Canberra CommentFairfax Agricultural Media Canberra correspondent Colin Bettles tackles the big national rural and agricultural issues which will impact regional and rural Australians.


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