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.”