4th UPDATE:Canada's Agrium Bids A$1.24 Billion For Australia's AWB

Canada's Agrium Inc. (AGU) made a A$1.24 billion (US$1 billion) unsolicited bid for Australian wheat exporter AWB Ltd. (AWB.AU), topping a proposed merger with GrainCorp Ltd. (GNC.AU) as poor harvest prospects spur a global grab for wheat.

Canada's second-largest fertilizer producer said Monday it is offering to pay A$1.50 in cash for each AWB share, a 32% premium to GrainCorp's bid. Sydney-based GrainCorp is offering one share for every 5.75 AWB shares, valuing its bid at A$1.14 for every share in Australia's troubled former wheat-export monopoly, based on Monday's closing prices.

GrainCorp on July 30 unveiled its plans for an all-share merger, valued at more than A$930 million, with AWB.

Calgary-based Agrium says the acquisition enables it to expand into Australia, which like the U.S. is a major grain exporter that's expected to benefit from ballooning demand for its wheat, and become a launchpad into Asia. The company, with operations in North and South America, Europe and Egypt, is North America's largest direct-to-grower agricultural retail network, with more than 929 retail outlets in the U.S.

"Australia will be a hub from which we can further grow in Asia," said Agrium Chief Executive Mike Wilson in an interview.

"We've been looking to break into Australia for the past five years. AWB is a good cultural fit, and it's one that we can lever our strengths into from a retail, wholesale and advanced technology point of view," he said.

Agrium's unsolicited bid comes as a drought in Russia, as well as flooding in China and Canada, have threatened the world's wheat supply and pushed up global grain prices. Canada's woes, in particular, are expected to lead to a 24% drop in wheat production this crop year, pummeling a traditionally big market for Agrium's fertilizer. The U.S. Department of Agriculture last week cut its global wheat output forecast for the coming crop year by 2.3% to 645.73 million tons, a week after Russia said it was banning grain exports because of crop damage from its drought. The Russian announcement sent wheat prices soaring to near two-year highs.

The bid also follows Agrium's withdrawal earlier this year from a four-way battle to buy Deerfield, Ill.-based fertilizer producer CF Industries Holdings Inc. (CF), in an attempt to become the world's second-largest publicly traded producer of nitrogen-based nutrients. Agrium has completed nine acquisitions valued at about $3.4 billion in the past five years.

AWB shares surged 30% in Sydney following the Agrium bid, to A$1.42 its highest close since February 2009. In New York, Agrium fell slightly in after-hours trade Monday, to $65.77.

Melbourne-based AWB, with more than 2,200 employees, is Australia's largest distributor of rural merchandise and fertilizer. Wilson said Agrium is hoping to market its international fertilizer and crop-protection capabilities through the 400 outlets in AWB's Landmark national rural merchandise and service network.

AWB also has two other business lines that it had been considering either finding partners for or selling. They are the commodity-management group, which handles and distributes grain, and the international grain-trading group.

Wilson said Agrium is weighing several options for these two lines should the company acquire AWB. "We'll look at all options, from divesting to partnering, to keeping parts of it," he said.

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.

Agrium's bid is conditional and requires unanimous support from the AWB board, as well as approval from Australia's Foreign Investment Review Board.

Wilson said he doesn't foresee any roadblocks. "We bring a range of new products that should help the company grow from our private label to proprietary environmental. We're a company that typically manages and operates locally. From a farmer perspective, they were looking at a merger of equals and if anything, we should enhance competition for them," he said.

In a statement, AWB said its directors "haven't withdrawn or modified" their recommendation that shareholders vote for a merger with GrainCorp. Their merger was expected to create Australia's largest grain-trading company and its biggest agribusiness with a market capitalization of around A$2 billion and annual sales of more than A$7 billion. Their accord, which has a A$8 million breakup fee, doesn't prevent them from talking with Agrium.

AWB came under fire during the U.N. 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. Since then, more than two dozen wheat exporters emerged.

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.

Further consolidation is expected in Australian agriculture, Citi analysts said. Potential targets include GrainCorp itself, Elders Ltd. (ELD.AU), which runs 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 grain players, including Viterra, Minneapolis-based Cargill Inc., White Plains, N.Y.-based Bunge Ltd. (BG) and Singapore-based Noble Group Ltd. (N21.SG), Citi said in a report.

-By Ray Brindal and Caroline Van Hasselt, Dow Jones Newswires; 612 62080902; [e-mail]

(Phred Dvorak contributed to this article.)