Viterra to buy Australia ABB for $1.2 billion

SASKATOON, Saskatchewan (Reuters) - Canada's top grain handler, Viterra Inc (VT.TO), said on Tuesday it has reached an agreement to buy Australia's ABB Grain Ltd (ABB.AX) for $1.2 billion in cash and stock, giving Viterra access to growth markets in Asia.

Viterra's (VT.TO) acquisition of ABB Grain Ltd (ABB.AX) would add "meaningfully" to earnings in the new company's first year of operations, Viterra President and Chief Executive Mayo Schmidt said.

"There's not a better combination in the world today," Schmidt said in a conference call with analysts. "We're going to take this to the finish line."

The deal values ABB shares at A$9.11-A$9.41, a premium of up to 9.4 percent from ABB's last traded price. The offer includes a special A$0.41 a share cash dividend to be paid by ABB.

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ABB directors have unanimously approved the deal and recommended their shareholders vote for it in the absence of a better offer. Shareholders are set to vote in September.

Buying ABB would help Viterra lower its transport costs by shipping grain from Australia to Asia, instead of from Canada. The two companies estimate synergies of about A$30 million ($23.3 million) a year from the deal.

The new company -- the name of which has not been determined -- would have the geographic advantages of crop supply from different hemispheres, hedging it against weather-related risk. Access to the Asian market is seen as key, with Schmidt saying that Asia's imports of wheat, barley and canola will increase 39 percent over 10 years.

The acquisition would be only the first step in further consolidation of the industry globally, Schmidt said. The new company would be willing and able to make further acquisitions based on strong balance sheets and low leverage, he said, with the most attractive companies being those in value-added grain processing.

Viterra would have room on its balance sheet to make further acquisitions in Australia such as Graincorp Ltd, analyst David Newman of National Bank Financial, said in a note to clients.

The deal comes after ABB ended merger talks in December with Australia's AWB Ltd (AWB.AX), and is the latest consolidation play in the Australian grain market following deregulation last year, when AWB lost its monopoly over wheat exports.

Layoffs are "not part," of the expected synergies, Schmidt said. He said there would also be minimal changes in management at the two companies, with the registered headquarters remaining in the Canadian Prairie city of Regina, Saskatchewan, with Australian, New Zealand and Southeast Asian operations based in Adelaide.

Viterra attempted global expansion in 1996 when it was known as Saskatchewan Wheat Pool. Its acquisitions in Poland and Mexico were failures and helped push the company almost into bankruptcy in 2003 before a new management team took over and carried out the successful acquisition of Canadian grain handler Agricore United.

"This has been well-planned," Schmidt said when asked about the difference with this proposed acquisition. The companies have similar cultures and histories that make them a good fit, said ABB managing director Michael Iwaniw.

Viterra had raised C$450 million in a bought-deal subscription receipt offering, which is a share offering contingent on the deal going ahead. The company has residual cash, Schmidt said, from the combination of that offering and C$700 million in cash it previously said it had for growth.

(Reporting by Rod Nickel and Denny Thomas; editing by Peter Galloway)