CBH Group managing director Andrew Crane has declared the West Australian grains handler will remain as a co-operative, dismissing suggestions Archer Daniels Midland's (ADM) failed $3 billion bid for GrainCorp had increased appetite among its grower owners to privatise the company.
ADM's failed bid for GrainCorp has highlighted the extraordinary value in agricultural supply chain assets and triggered fresh calls by analysts and Western Australia's Pastoralists and Graziers Association to float the business. This could unlock more than $4 billion for cash strapped farmers.
Dr Crane said, however, the majority of CBH's 4300 grower owners were committed to its co-operative structure, which was last tested in 2010 when growers supporting corporatisation unsuccessfully tried to gain a foothold on the CBH board.
"If anything, our employees, our board and our growers are hugging the business even tighter than they ever have.
"CBH will remain a co-operative and remain focused on returning value to our growers," Dr Crane said.
The failed takeover has also thrown a spotlight on CBH's east coast expansion plans and increased speculation it could look to do a deal involving a GrainCorp takeover or build a strategic stake in GrainCorp.
ADM owns 19.9 per cent of GrainCorp. CBH owns and operates a grains handling and logistics business similar in size to GrainCorp's east coast operations and owns flour milling operations.
Active pursuit
Back-to-back record crops are boosting profits for CBH, which has been actively pursuing acquisitions but has been outbid by America's biggest private company Cargill, which paid $US373 million ($417 million) for Joe White Maltings last year and snared AWB's trading and storage business in 2010. Dr Crane refused to say whether CBH was weighing up a potential tilt at GrainCorp, or if it was considering a strategic investment, other than to say CBH would "assess all opportunities".
Treasurer Joe Hockey left the door ajar for ADM to increase its position in GrainCorp to 24.9 per cent.
If CBH took a significant chunk of GrainCorp the two companies could effectively control GrainCorp without mounting a takeover.
Dr Crane said being a co-operative did not constrain its financing capabilities, dismissing suggestions CBH should list on the sharemarket so it can tap equity markets to fund growth.
"We run a really successful business with strong returns. There are different ways we raise finance," Dr Crane said.
CBH is currently assessing whether to build grain storage assets across the eastern seaboard to complement its investment in the Newcastle Agri Terminal, a grain export port facility completed last year.
Dr Crane rejected reports CBH lobbied Federal politicians last year in attempt to force a carve up of GrainCorp's port assets. It was reported CBH wanted to buy grain ports from its rival, primarily GrainCorp's Port Kembla facility, which would boost competition desperately pursued by growers agitating against ADM's takeover.
Wooing behind the scenes
At a Deutsche Bank conference in November, CBH director Diane Smith-Gander supported a call by Queensland premier Campbell Newman for GrainCorp to divest ports, fuelling speculation CBH was working behind the scenes to cherry-pick GrainCorp's assets.
While CBH would consider any asset sales, Dr Crane said its efforts in Canberra were focused on protecting its existing operations from possible regulatory conditions that may have been imposed on the sale.
"Our concern was more around if there were conditions placed on the deal in the form of regulation that weren't deal-specific but were cross-industry regulation," he said.
"Our concern was that there was other regulation that would have unintended impacts and added additional cost to our supply chain here in Western Australia." He said CBH had taken neutral view to the transaction, noting that ADM was an important CBH customer.
He declined to comment on whether he agreed with the treasurer's decision to block the deal.
CBH is building infrastructure on the east coast even though it acknowledges there is plenty of capacity in the network.
Dr Crane said CBH wanted to reduce "execution risk" because it had endured delays loading vessels at GrainCorp ports, which meant it had to build in a "risk margin" when buying grain from growers.
"We need to be integrated," Dr Crane said. "There are real benefits of the supply chain being owned and run by businesses that see the value as a whole and not disaggregating the supply chain in different components."
Yet, on the west coast, where CBH operates a virtual monopoly, Dr Crane argues it makes sense for rival marketers to use its network because it was delivering a low-cost supply chain.
It's a similar argument deployed by GrainCorp, which says it needs to encourage third-party marketers to use its network to deliver grain volumes and lower costs for all players. He said because CBH was a co-operative, various business units did not have to strive to individually turn a profit – it was about accessing global markets as efficiency and cost effectively as possible.
"[As a co-operative] if our growers decide they don't want rail to make a profit, that they want to run it at break-even, as we do, they make that decision because it is more important for them that they are competitive on the world market, not that one end of their supply chain is making a margin."
He said the co-operative model was proving a successful model for agriculture globally.
