3rd UPDATE: Canada's Agrium Bids A$1.24 Billion For Australia's AWB

Canada's Agrium Inc. (AGU) unveiled an all-cash A$1.24 billion ($1.1 billion) unsolicited takeover bid for Australian wheat exporter AWB Ltd. (AWB.AU), trumping a merger proposal from rival GrainCorp Ltd. (GNC.AU).

Agrium, which earlier this year failed in its bid to buy fertilizer producer CF Industries Holdings Inc. (CF), said it proposes to pay A$1.50 in cash for each AWB share, valuing the troubled former wheat export monopoly at A$1.24 billion ($1.1 billion), a level considerably higher in value than the share-based merger with Sydney-based GrainCorp.

Canada's second-largest fertilizer producer said its proposal represents a 57% premium to AWB's closing price of A$0.955 on July 29, just before the merger plan with Graincorp was announced. Under that plan, AWB shareholders were to get one GrainCorp share for every 5.75 shares held. At Monday's GrainCorp closing price of A$6.53/share, that works out to around A$1.14 for every AWB share.

AWB shares surged 30% following the Agrium bid to A$1.42, its highest close since February 2009. In New York Monday, Agrium was down 80 cents to $66.47 on about 265,000 shares.

Since deregulation in 2008, Australia's wheat market has attracted keen interest from foreign agribusiness companies. Last year, South Australia-based ABB Grain Ltd. was snapped up by Canada's Viterra Inc. (VT.T) for about A$1.65 billion. If successful, Agrium's takeover of AWB would mark the second time a Canadian company has acquired a major Australian agricultural company.

Calgary-based Agrium said it sees significant potential to enhance its product and service offerings to Australian and New Zealand growers. Melbourne-based AWB, with more than 2,200 employees, is Australia's largest distributor of merchandise and fertilizer, offering a full range of products and services, including merchandise, fertilizer, farm services, wool and livestock marketing, financial services and real estate sales. Through the 400 outlets in AWB's Landmark national rural merchandise and service network, Agrium is hoping to market its international fertilizer and crop protection capabilities, President and Chief Executive Mike Wilson said.

Wilson has completed nine acquisitions valued at about $3.4 billion in the past five years. In March, Agrium withdrew from a four-way takeover battle for Deerfield, Ill.-based fertilizer maker CF Industries in a bid to become the world's second-largest publicly traded producer of nitrogen-based nutrients.

Agrium expects the proposed AWB acquisition to be immediately accretive to earnings. In a note, RBC Capital Markets estimates that the acquisition could boost Agrium's earnings per share by about 25 cents.

The bid represents attractive value and cash certainty for AWB shareholders and seeks to continue Agrium's strategy of growing its retail business, Wilson said. Agrium is a major retail supplier of agricultural products and services in North and South America and a global producer and marketer of agricultural nutrients and industrial products.

Agrium's bid comes amid a sharp rally in global grain prices driven mostly by the impact of a Russian drought and a subsequent ban on Russian wheat exports through Dec. 31.

AWB said the agreement with GrainCorp, expected to create Australia's largest grain trading company and its biggest agribusiness with a market capitalization approaching A$2 billion and annual sales in excess of A$7 billion, doesn't prevent it from talking with Agrium.

But the Agrium bid itself is conditional on it being allowed to conduct due diligence on certain financial and legal matters, and will need approval from Australia's Foreign Investment Review Board. It will also need the unanimous support of AWB's board.

Given these conditions, that it is subject to negotiation and that it may not lead to a definitive agreement, "the merger agreement with GrainCorp remains on foot and AWB directors haven't withdrawn or modified their previous recommendation that shareholders vote in favor of the merger with GrainCorp," AWB said in a statement.

While the new development could result in increased attention on AWB, "GrainCorp (is) unlikely to counter bid, as this isn't a must-do deal" for them, Citigroup said in a note Monday.

The market seemed to agree, with reduced prospect of a merger driving GrainCorp shares 4.2% higher to A$6.53/share Monday.

But Citi said other competing bids for AWB can't be ruled out, given Landmark offers international agribusinesses a leading position within the Australian rural services sector.

As one of Australia's two large wheat exporters, AWB has a commodities management business with operations in Australia and Geneva, offering trading, logistics, ship chartering and risk management services.

RBC says it wouldn't be surprised if Agrium sold AWB's commodity-management business, given its interest in AWB largely relates to Landmark.

The company came under fire during the United Nations oil-for-food scandal, after it was found to have paid $221 million to the Iraqi regime of Saddam Hussein to secure wheat sales. With the scandal leading to renewed calls to open the market to competition, AWB lost its monopoly over bulk wheat exports in July 2008 and has lost its pre-eminent position with the entry of more than two dozen wheat exporters since then.

The company posted a A$250.8 million loss in fiscal 2009 and a loss of A$64.8 million in the fiscal 2010 first half ended March 31.

Citi analysts said further consolidation is expected in Australian agriculture with under-valued assets and positive longer-term industry fundamentals as key drivers.

Potential targets include GrainCorp itself, Elders Ltd. (ELD.AU), which operates Australia's other major national rural services and merchandise network, and stockfeed and salt company Ridley Corp. (RIC.AU). Elders' shares closed 12% higher Monday.

GrainCorp offers strategic merit to international grains players including Cargill, Viterra, Bunge and Noble, Citi said in a report. Favorable industry fundamentals together with the prospect of further M&A activity is likely to support share prices within the agri sector," it said.

-By Ray Brindal, Dow Jones Newswires; 612 62080902; [e-mail]

(Caroline Van Hasselt in Toronto contributed to this article.)