Agrium Eyes AWB - Analyst Blog

In an attempt to strengthen its retail business, fertilizer company Agrium Inc. (AGU) made an unsolicited offer to acquire AWB Limited for A$1.238-billion (US $1.19 billion). AWB Limited is Australia's largest agribusiness and one of the world's largest wheat marketing and management companies. Shares of both the companies surged after the announcement of the proposed merger.

Meanwhile, another Australian grain maker, GrainCorp Limited, has already been pursuing AWB. GrainCorp made a proposal to acquire AWB on July 30, 2010. The all-stock deal is valued at A$885 million. AWB shareholders would get one GrainCorp share for every 5.75 AWB share, valuing each share at A$1.047 ($1.00). GrainCorp hopes to emerge as Australia’s largest grain marketer and rural services provider through the merger.

Based in Alberta, Canada, Agrium is a major retailer of agricultural products and services in North and South America, a leading global wholesale producer and marketer of all three major agricultural macronutrients − nitrogen, potash, and phosphate, besides being a premier supplier of micronutrients and specialty fertilizers in the U.S. and Canada.
 
This merger with AWB would help Agrium venture into the Australian markets in its Retail business that contributes to more than half of its total revenues. In its Retail segment, Agrium offers crop nutrients, crop protection products and seed, services & other products directly to farmers. Crop Nutrients (58% of Retail sales in 2009) include a range of products such as nitrogen, phosphate, potash, sulfur and micronutrients in either liquid or dry form. Crop protection products (32% of retail sales) comprise herbicides, insecticides and fungicides. Seed, Services & Other Products (10% of retail sales) contain a complete range of crop seeds as well as liquid and dry fertilizers.

Agrium expects to benefit from AWB’s retail Landmark Rural Services division that would boost revenues going forward. Agrium’s current offer of A$1.50 per share ($1.44) represents a 57% premium over AWB’s trading price of A$0.955 ($0.92) as of July 29, 2010, the day before GrainCorp made its offer. At the current price of A$1.10, Agrium’s offer represents a 27% premium, lucrative enough for AWB, which has kept the GrainCorp proposal on hold for now. We think that chances of AWB accepting the deal are bright, given the 57% premium compared with the no premium GrainCorp offer. 

Agrium follows a focused strategy to grow along the value chain through a combination of acquisitions and organic development efforts. The company has completed as many as nine acquisitions in the last four years. It has expanded its Retail operations with the acquisition of 22 retail centers from Archer Daniels Midland in the southern U.S. for $13 million. Agrium also acquired 26% of a 675,000-ton urea facility of the MISR Oil Processing Company in Egypt. In its Advanced Technologies business, the company expanded into China by purchasing a 19.6% stake in fertilizer company Hanfeng Evergreen for $63 million. Agrium’s proposal for AWB comes after the failed $5.4 billion bid for rival CF Industries Holdings Limited (CF). 

Currently, Agrium is a short-term (1 to 3 months) Zacks #3 Rank (“Hold”). We maintain our long-term Neutral recommendation on the stock.

 
AGRIUM INC (AGU): Free Stock Analysis Report
 
CF INDUS HLDGS (CF): Free Stock Analysis Report
 
Zacks Investment Research