All eyes are on wheat, a sector that is now said to be at the doorstep of the next wave of consolidation. Each of the three big grain companies, two of which rank on this year’s Diplomat Global 100, have asked their owner-growers to vote in favour of share restructures in the last six months.
Barley exporter ABB Grain, ranked 65 on this year’s Diplomat Global 100 with revenue of $1.5 billion in the year to September 30, 2007, was the first to collapse its dual share structure in November last year. Competitors GrainCorp and AWB (rank 25) asked their grower-shareholders to do the same in February. Only GrainCorp got its proposal over the line, but AWB is expected to put the vote to shareholders again in September after the government introduces legislation to end the single desk arrangement on wheat exports.
These changes in structure are significant. Australia’s grain companies emerged from farmer co-operatives with a share structure that by definition produced conflicts. Grower-shareholders held shares that could not be traded, but special voting rights were attached that gave them control. Investor-shareholders provided capital because few grower-shareholders had the resources to inject funds.
Removing this dual structure sets the scene for a wave of consolidation. The scrapping of the single desk arrangement would further heighten takeover activity, and larger, more diversified groups are likely to emerge as a result. Right now, it’s not only the co-operative structure standing in the way of consolidation among the big wheat companies.
Another complication in the way of consolidation has been shareholder caps. Of the three listed grain companies, Graincorp is the only one without a restriction in its constitution governing how much an individual shareholder can own. ABB Grain’s cap is 15 per cent while AWB’s is 10 per cent. Speculation is rife that both companies will lobby for the removal of these caps later this year. In fact, AWB chairman Brendan Stewart has already said in the Australian Financial Review that if a proposal to take over the company was compelling enough, the board would consider asking shareholders to remove the cap.
The lifting of these caps would see Australia’s biggest wheat companies in play. And with price hikes and the prospect of long-term food shortages on the horizon, foreign companies would be keen to swoop in to guarantee their supply.