Tuesday, October 30, 2012

Takeover targets: who's next?

THE surprise swoop on NSW-based grain giant GrainCorp by US farm commodity company Archer Daniels Midland is setting the scene for a rash of new big-scale takeover interest in what's left of Australia's major agribusinesses. 

Stockbroking and financial advisory firm RBS Morgans not only tips more global food traders/processors will vie for GrainCorp's strategic assets, but says similar players are set to pounce on local farm chemical and plant breeding success story Nufarm and fertiliser and explosives business Incitec Pivot. 

Victorian-based dairy processor Warrnambool Cheese and Butter will "inevitably be involved in industry consolidation" as strong offshore interest, particularly from Asia, looks to secure Australian dairy supplies.
A raft of high profile agribusinesses to fall to offshore buyouts in the past five years has included dairy company National Foods, big grain businesses ABB and AWB, sugar processors Tully, Sucrogen and Maryborough Sugar Factory and farm supplies and selling agency firm Landmark. 

Next wave targets are likely to be Treasury Wine Estates (TWE), stockfeed company Ridley Corporation, big beef producer Australian Agriculture Company (AACo) and corporate farming business PrimeAg, all of which already have strong overseas investment interests on their books. 

Australia's oldest cotton company Namoi Cotton and cotton and grain producer Tandou were already looking at overseas options for big injections of new capital investment. 

"We expect further takeover activity in the agricultural and food sector given that all the corporate movement so far says a lot about the positive outlook for agriculture," said senior RBS Morgans analyst Belinda Moore.
"Global wheat export trade has doubled in the past 40 years and the global trade of wheat barley and canola is expected to double again by 2050 driven by a 35 per cent population rise and a 13pc rise in per capita grain consumption." 

Ms Moore said Australian agriculture's appeal to global investors included its production quality, freight and food traceability advantages. 

"It is also the food bowl or gateway to Asia," she said.

"It's only a matter of time before the Chinese show corporate interest in TWE given the strong wine consumption growth in China."

Malaysian and Middle East investment partnership IFFCo/Felda already owned 16pc of AACo and despite local milk processors Bega Cheese and Murray Goulburn's stakes in WBC, its highly efficient position in the export trade made it "very attractive" to long term overseas interest.

Japanese commodity conglomerate Sumitomo already owned 23pc of Nufarm and "seems to be a logical buyer" in the future.

Incitec Pivot would attract strong corporate interest given it was the fertiliser market leader with 60pc of the eastern Australian market.

According to the Rural Industries Research and Development Corporation foreign investors now own half of Australia's 23 licensed wheat exporters, half the country's milk production (via Fonterra, Lion, Parmalat), 60pc of raw sugar production (via Finasucre, Wilmar and COFCO) and 40pc of red meat production (via JBS, Cargill and Nippon Meat Packers).

But while foreign takeovers had some costs for the local farm sector Australian Farm Institute executive director, Mick Keogh said our export-focused farm sector had long history of relying on capital from offshore to bankroll many of big agribusinesses.

Among the biggest concerns he foresaw with overseas companies gaining near-monopoly positions in the grain sector was Australia's lack of market pricing and stocks transparency.

"I'd think people would like to be reassured that they'll be dealing with a fair and transparent trade, which means we need better information available to sellers and buyers," Mr Keogh said.

He noted trading transparency was better in other sectors, including the equities market, while US farmers had access to far better price and crop forecast data - and a longer harvest - which helped them make informed trading decisions.

"It's a shame our agricultural companies haven't been able to grow a lot bigger as international players, but by and large Australians seem fairly comfortable with the idea of overseas ownership - it's been part of our lives for so long," Mr Keogh said.

"At the turn of last century we had a lot of meat export and production investment from Britain and Europe with groups such as William Angliss and Vestys, then we started exporting to the US, so American companies were prominent.

"The Japanese emerged in the 1970s in the meat and wool sectors, then Korea, now China and other Asian and Middle Eastern countries are strong investors in sugar and meat as they've come to rely on our markets."

Source  http://sl.farmonline.com.au/news/nationalrural/agribusiness-and-general/finance/takeover-targets-whos-next/2630594.aspx

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