E-Malt.com News article: 2224

Australian marketer ABB Grain Ltd. said on February 19 that merger talks with malting and logistics concern AusBulk Ltd. are continuing, but no agreement has yet been reached, Dow Jones revealed. It isn't certain a merger agreement will be reached, however, ABB Grains said. "ABB directors believe that there is considerable merit in bringing the two companies together to create a unified and fully integrated grain business, provided that is in the interests of ABB and all ABB shareholders," the company said in a statement.

John Murray, AusBulk's managing director, had said on December 15 that ABB Grain would be a natural fit for the company. "The two companies fairly well complement each other in their core businesses" and their shareholders, he said then. Both ABB Grain, which markets barley and other grains, and AusBulk are based in South Australia state.

The two companies are well into merger talks, and at the forefront of the ACCC's interest is the stranglehold a merged entity would have in the barley/maltster market, Australian The Age news revealed on February 20.

ABB is the leading collector and marketer in south-east Australia of barley, the raw material for malt, while AusBulk is the largest maltster in Australia and controls the SA market. Only Western Australia's Co-operative Bulk Handling, with more than 20 per cent of the national barley market, is a rival.

Muddying the waters is the SA Government's intention to deregulate the state's export barley market, which would deprive ABB of its barley export monopoly. ABB and SA farmers are fighting the move.

Whatever the outcome, crunch time is approaching for ABB and AusBulk. Although their immediate focus is SA, the playing field is a national one; the grains industry, driven by deregulation, privatisation and competition, is moving inexorably towards consolidation.

In 1985, there were 15 grower organisations involved in the Australian grains industry. Now that number has fallen to five, and the biggest players are still looking to expand.

Wheat export monopoly AWB last year bought the Landmark rural trading outlets for $825 million, and Graincorp completed its acquisition of Queensland-based Grainco. ABB and AusBulk don't want to be left behind.

Size and economies of scale are crucial. AWB has a market capitalisation of $1.5 billion; GrainCorp, a grain handling, storage and marketing group active in Victoria, NSW and Queensland, has a market cap of $540 million, and WA's grower-owned CBH has a turnover of more than $900 million.

By contrast, ABB's market cap is $280 million, and AusBulk's turnover last year was a little more than $500 million.
The changes to the grains industry have obscured the differences between the players. Companies have moved away from their historically narrow functional and geographical boundaries, and broadened their scope of operations.
AusBulk was formed in 1954 as South Australian Co-operative Bulk Handling to handle and store grain. It now owns and operates a network of 113 country silos and seven export terminals in SA and Victoria.

However, under pressure to diversify and vertically integrate, it bought Adelaide Malting Company and Joe White Maltings in the past two years.

ABB has trodden a similar path. Formed in 1939 as the Australian Barley Board, it was transformed from a government authority into ABB Grain in 1999. Its listing on the Australian Stock Exchange came three years later, in 2002.

ABB's share price has risen by more than 50 per cent in the past two months, from $4 to more than $6.30, driven by the record harvest and bullish harvest outlook, and the mooted benefits of a merger with AusBulk.


20 February, 2004