GrainCorp happy with CBH strategic fit

22 Feb, 2016 02:00 AM
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GrainCorp MD Mark Palmquist
GrainCorp MD Mark Palmquist

GRAINCORP is approaching its potential investment in a consortium pushing to corporatise Australia’s largest grains industry co-operative, Western Australia based CBH, as a low risk opportunity to geographically diversify its business.

GrainCorp may invest up to $600 million in the CBH business through an initial payment to CBH shareholders of $300 million then followed by a call option to buy an additional $300 million worth of stocks when CBH is floated on the stock exchange.

With analysts generally valuing CBH at around $3 billion this would give GrainCorp a significant minority stake in CBH, which like GrainCorp, has its background in the grain storage and handling sector.

Managing director at GrainCorp, Mark Palmquist, said GrainCorp felt the proposal for corporatisation, spearheaded by WA-based grower group Australian Grain Champions (AGC) was a sound fit for his company.

“We see enormous strategic merit in the Australian Grains Champion proposal,” he said.

Mr Palmquist said one of the major pluses to the proposal was that it was prepared by the WA production sector.

“This proposal is grower led and that is critical.

“Given the way CBH is structured, this move has to be led by growers to succeed.”

From GrainCorp’s point of view, he said the CBH business was a natural fit for the company.

“CBH has complementary assets and capabilities and a stake in the business will be a good diversification opportunity for us.”

In particular, he said having a presence in Western Australia would allow GrainCorp to better support its overseas customers.

Mr Palmquist said the financial commitment was a low risk move, given it was only payable if AGC got their proposal over the line.

He said he saw CBH benefitting from GrainCorp investment in terms of improved access to capital.

“It will free up value on their balance sheet, which will allow them to reposition themselves in both a strategic and a structural sense.”

Mr Palmquist said the decision to invest in the AGC proposal was made independently of American grains giant ADM, a significant shareholder in GrainCorp.

“We haven’t talked with them regarding this plan.”

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READER COMMENTS

Jock Munro
22/02/2016 5:31:29 AM

The audacity of Graincorp after they ran down their handling assets and gouged growers. WA growers should look to the Eastern States if they want proof of where flogging off their co op would lead them.
John
22/02/2016 5:51:47 AM

The ultimate ownership of CBH under this proposal will be ADM! Graincorp will fall to ADM in time and then ADM will move to take over CBH in full. This is what has happened in Vic and SA where Glencore now controls grain orgination in those States. The East Coast is tied up by Graincorp and now the West, if the farmers are unwise enough to agree to this proposal - will follow suit. CBH 'owns" a lot of its end demand by having shares in milling facilities offshore - these will also fall to the offshore raiders. Don't do it!
western worrier
22/02/2016 8:09:03 AM

Let Dracula into the blood bank ,dilute the value of C.B.H.then see how long WA grain growers have control of their industry !
boris
22/02/2016 8:50:43 AM

Gee it doesn't take long for the know all bull frogs to pontificate about their day dream predictions. The facts are that CBH is a socialist organization bought about via legislation that forced growers to use the service because other emerging bulk handlers were legislated out of business. The network in WA will leak more tonnage to competitors as growers in efficient areas seek out a lesser cost pathway to port. The efficient areas pay a higher fee to lessen the real costs for those growers located in inefficient areas. This is the high water mark of value. Tick yes to ensure CBH's future!
x
22/02/2016 9:08:57 AM

CBH's Board should have taken some initiative and seriously explored the Eastern States options, too late now. Whilst the AGC proposal will not get up it should serve as a major wake up call for the current CBH Directors who appear to think they can dig a trench, put their head in the sand and forget about global grain dynamics
LTF
22/02/2016 10:30:34 AM

There is no possible way WA growers could be better off under GrainCorp ownership of CBH. For more than 50 years CBH has been voted internationally as the best performing grain bulk handler in the world. GrainCorp did such a poor job in its State of NSW that NSW growers and local merchants developed the largest on farm and alternative storage regime in Australia. NSW growers obviously voted GrainCorp as a massive failure by their own actions. Let GC get hold of CBH and growers in WA will be slaughtered in terms of service delivery. It would be a disaster.
Deregul8
23/02/2016 5:21:10 AM

If CBH were doing their job efficiently we would be looking cheaper storage and handling costs over time. Instead we are given price rises above CPI because the board sees fit to make a bunch of hair brain investments, Asian value adding, Newcastle terminal, trains without tracks, fertilizer, all of which must be funded. The current political model is keeping our costs high and making it attractive for competitors to enter.
Consolidated
23/02/2016 5:26:04 AM

Growers aren't fooled by the rebate system. CBH is charging shareholders 8% more this year than they did last year. A buck or two back in rebates is meaningless when you've been charged an extra 3or 4 back down at the bin.
drowning in debt
23/02/2016 5:35:04 AM

the only time we hear from these directors is when they need a reelection. fact is they have been spending like drunk sailors and growers are getting slapped with increasing charges with more to come . running a 4billion dollar company like the next phase in life and all the fruit it brings an individual means the current politically run model is doomed. many coop members know this .
Interested Party
23/02/2016 8:11:40 AM

I don't understand why CBH would not go it alone if WA farmers wished to list their Co-op rather than fatten the purse of GrainCorp and others. It will be interesting to see if it goes to a vote and how much notice they have taken to previous listings over here (east coast). I see boris is still bleating - tick yes to ensure GrainCorp's future you mean boris!
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