World Grain - March 2016 - 10

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GrainCorp suggests privatization of CBH

SYDNEY, AUSTRALIA - In mid-February, publically-owned GrainCorp, operator
of the largest eastern Australian grain storage network, announced that it had joined a
consortium that is proposing the privatization
of farmer-owned CBH Group and listing the
83-year-old cooperative on the Australian
Stock Exchange.
CBH, which operates a grain network in
Western Australia, responded a few weeks
later with a letter to the consortium - Australian Grains Champions (AGC) - calling for
more detail on their proposal to corporatize the
cooperative.
CBH operates 195 receival locations and
four port terminals. CBH recorded its fourth
largest harvest of 13.6 million tonnes in 2015.
The company has a market share of more
than 30% of Australia's grain exports. The cooperative invested $177.4 million into capital
works and maintenance projects for the year.
This included $51 million spent on the ports.
2015 also saw the successful implementation
of long-term agreements with 10 export customers resulting in 10.2 million tonnes of port
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The proposal, which is backed by GrainCorp and H.R.L. Morrison, offers growers
a cash payment and shares in a corporatized
CBH. AGC presented the proposal to the board
of CBH with a request that it be put to CBH's
grower members.
Wally Newman, CBH chairman, said the
proposal given to CBH does not provide the
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an assessment of whether the AGC proposal is
in the best interests of CBH members.
10

If CBH and GrainCorp's infrastructure assets are integrated, they would bring together a significant portion of Australian's grain export pipeline spread across the entire continent. These facilities would include
GrainCorp's Fisherman Island, Brisbane, Queenland, Australia port facility in the east (left) and the storage cells at CBH's Metro Grain Center in Perth, Australia (right) in the west.
"The board has worked with external advisors and CBH's senior management team over
the last week to assess the proposal," he said.
"We are clear about our obligation to growers
and believe it's fair and reasonable to request
this information so that we can continue to assess whether this proposal is in the best interest
of WA grain growers, in good faith and with an
open mind."
CBH's value would be determined through
an initial public offering (IPO), GrainCorp
said, but analysts have valued the Western
Australian cooperative at as much as A$3 billion ($2.1 billion). GrainCorp said it would be
a cornerstone investor, putting up as much as
A$600 million. That would be transferred to an
equity stake in CBH once it is listed and give
GrainCorp a 20% stake in CBH if it was valued at A$3 billion.
"We are yet to see any detail around the
proposed AGC 'Network Re-Shape Plan,' the
AGC 'Five Year Growth Plan,' the 'Future
Farming Fund' and 'Grower Loyalty Investment Scheme,'" said Newman. "For the sake
of growers we need to have some clarity on
the long-term storage, handling and transport
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on charges, will they go up dramatically after
that point?"
"The composition of the board of directors
of AGC is not clear and there appears to be no
mechanism by which WA grain growers are

guaranteed representation at board level. There
must be an indicative view of value and associated implications for CBH grower shareholders in terms of value of shareholding," said
Newman.
The CBH board is focused on the areas of
value leakage, the loss of grower control, the
lack of detail offered and the blocking stake offered to GrainCorp at a discount."We still don't
know what percentage of AGC will be owned
by CBH shareholders, GrainCorp, H.R.L Morrison and the AGC founders." Newman said.
"The proportion of grower ownership and the
value for grower shares would remain an unknown until after the actual eventual listing
of AGC takes place, this is vital detail that we
must have before we can continue with an assessment of the AGC proposal."
If CBH agrees to put the offer to its 4,200
farmer owners, the proposal would require at
least 75% support to move forward. CBH's
farmer owners would receive shares in the
AGC consortium and A$600 million in cash.
AGC would be the holding company of
CBH and apply for a listing on the Australian
Stock Exchange. Leading up to the IPO, growers would have the opportunity to sell up to
A$400 million in additional shares during the
IPO process, or hold onto their shares.
The deal would also need approval by the
Australian Competition and Consumer Commission and other regulatory groups.
March 2016 / World Grain / www.World-Grain.com

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World Grain - March 2016

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