Merger between AWB Limited and Grain Corp - the Synergies to Be Created and the Manner in Which the Merger Will Help - Example

Executive Summary The proposed merger between AWB Limited and Grain Corp will help to create a big stronghold of Australian grains in the world market. The merger will result in adding value and will help to fetch grains a higher price in the world market. The merger will help to create positive synergy which will help ensure that proper returns are assured in the future. The report looks into the proposed merger between AWB Limited and Grain Corp. It also analyzes the manner in which the deal will pass through and areas it can face obstacle from Australian Competition & Consumer Commission (ACCC). It also looks in the prospective from the acquirer company prospective. A light on the SWOT analysis from the merger is provided for and the manner in which it will help to create value for both the shareholders and the company is demonstrated. The report thus helps to find the synergies that will be created and the manner in which the merger will help. Contents Introduction 3 Purpose of the report 3 Background of the company 4 Proposed Merger 4 Australian Competition & Consumer Commission Role in merger 5 Acquirer for business communication 6 SWOT of merger 7 Value Creation from the merger 9 Conclusion 10 References 11 Introduction The recent increase in merger and acquisition around the globe highlights the world economy slowly moving out of recession. This is what is being witnessed in Australia with a proposed merger between Grain Corp and AWB Ltd. The report looks into various aspect of the merger between the two by looking in the role Australian Competition & Consumer Commission plays in determining whether the proposed merger will go through or not. A SWOT analysis and the manner value is created will further help to draw more investors and ensure that the prices of the shares reflect the same. Purpose of the report To look into the different aspect of the proposed merger between Grain Corp and AWB Ltd To identify whether Australian Competition & Consumer Commission (ACCC) will favour or be against the merger To identify the acquirer and the manner it will affect the business combination in accounting To develop a SWOT analysis based on the proposed merger to identify the future trends for the company To find the manner how value will be created due to the proposed merger Background of the company AWB Limited has been in operation since ages and has transformed itself as “a leader in grain exporter from Australia”. (AWB Limited, 2010) The company is a major grain marketer and has its presence in over 50 countries where it exports Australian wheat. The company has a total of 3 divisions. They are Rural, financial and commodity management services. It is listed on the ASX since 1999. Grain Corp is a company which is into “receiving, storing, logistics and marketing of food grains and other commodities”. (Grain Corp, 2010) The company has its presence in the ASX. Grain Corp has grown and extended its reach to other parts of Australia by amalgamating with other operators who handle grains. The company on the backdrop of it has grown and has its presence over a large part of Australia. Proposed Merger The merger between AWB Limited and Grain Corp is being conducted on the backdrop of rising grains demand from Asian countries especially India and China. To meet their demands companies around the world are merging so that they are able to better control the market demand forces. The merger between AWB Limited and Grain Corp is being slated at “A$ 803 million which transforms into $723 million”. (Pugh, 2010) Grain Corp in the proposed merger will buy “AWB Limited and offer one share for every 5.75 AWB shares”. (Pugh, 2010) The hare holding pattern after the merger would be “58% being held by Grain Corp and 42% being held by AWB Limited”. (AAP, 2010) A result of the merger would be that it will make the “market capitalization to be worth 2 billion and at the same time generate synergy in excess of $40 million pr annum”. (APP, 2010) This merger will thereby help to create it as a biggest exporter and will thereby enable to get a good bargain in the market. Australian Competition & Consumer Commission Role in merger Australian Competition & Consumer Commission (ACCC) is a government agency which looks into Fair trade Practices. The aim of Australian Competition & Consumer Commission (ACCC) is to look that business transaction that is conducted in Australia due not give rise to “unfair practices, the use of market power and violation of consumer rights”. (Allan, 2000) The concern for the merger is that “ABW Limited and Australian Bulk Alliance has a contract between them regarding the bulk grain storage and handling of grains”. (Fels, 2010) This merger cold lead towards a point where the merged group is able to exploit the consumers and use their market power to influence is a concern for Australian Competition & Consumer Commission (ACCC). Recent findings and view point highlights that the merger would go through as there is a view that “Grain Corp will not retain the interest on Australian Bulk Alliance”. (Fels, 2010) This will ensure that powers vested due to the merger are not misused and will therefore allow the merger to pass through. The Australian Competition & Consumer Commission (ACCC) has powers to breaks cartels and if the proposed merger at any time in the future looks as if it is breaking the prescribed norms of the trade practice act then the Australian Competition & Consumer Commission (ACCC) can rebuke the merger. Another factor which might go against the proposed merger is that it could lead to control of power in few hands. This could go against the consumer demands as the company could influence the decision and price. The findings and predictions based on the merger provides that the merger will go ahead as Grain Corp would ensure that they don’t have interest in areas which could harm the merger as it would provide the merged entity to have a chance to earn through trade from other countries. Acquirer for business communication The acquirer of the entity is Grain Corp and the entity will be known as Grain Corp Limited. Since Grain Corp is looking forward towards merging and will have an upper hand in the share pattern also makes it a reason for it to be the acquirer. The fact that Grain Corp will give one share for every 5.75 shares makes it a reason for being seen as an acquirer. This will put forth a situation where the accounts will have to be prepared by Grain Corp. (Grain Corp & AWB, 2010) Also, the fact that it will look into all aspect with relation to the merger with regard to expenses, sharing of rights and other legal issues suggests it to be an acquirer. SWOT of merger The proposed merger will help to reap certain benefits and will also bring certain pitfalls with it. The SWOT analysis for the merger is Strengths The merger will create “Australia’s largest agribusiness which due to size will be able to operate 300 silos across states, have shipping ports and better export elevators”. (Pugh, 2010) This will thereby help them to have a good price for the export of grains from the country. The merger would “lure more investors as the liquidity position in relation to stock will improve leading to proper management of capital and getting operational efficiency”. (News, 2010) This will thereby help to improve the financial position and the market price of the shares. The merger will enable “the corporation to look towards reducing insects pests in grains improve crop yield from pest” (McKirdy, 2010) and other such as the expertise of both the company will help them draft better strategies on this mounting problem. The proposed merger will help to “prevent against foreign takeover as it will increase the size of the market capitalization” (Watkins, 2010) which will ensure that they don’t fall prey. This will thereby protect on of the growing business hub in Australia. Weakness The proposed merger is still to get clearance form Australian Competition & Consumer Commission (ACCC) which will make it difficult as such a merger could again lead towards a creation of monopoly business. The business is based on agriculture and if the production is low than the merger will have to face the additional burden as cost will rise manifold due to increased volume of the business which might go against the merger. Opportunities Export grains to the Asian markets which have seen a growth in demand due to rising population. To move into “Middle east and African countries which have witnessed a growing demand for high quality grains”. (Pugh, 2010) This will thereby open another opportunity in a new market Threats Increasing competition form other agribusiness giants like Cargill will make the proposed merger look meagre and will reduce the positive effects created by it The proposed merger faces threat from Australian Competition & Consumer Commission (ACCC) “as it creates a serious threat of a formation of a monopoly”. (Hefferman, 2010) This is a strong case which would go against the merger and make the results of it futile. The proposed merger also faces threats from other companies which might place a higher bid and might lure AWB Ltd towards it which will thereby dilute the benefits which might accrue from the merger. Value Creation from the merger The proposed merger between AWB Limited and Grain Corp will help to create value both for the company and the shareholders. This can be seen from the fact that “Grain Corp has agreed to pay divided of 10 cents per share to AWB shareholders and an additional 5 cents per share to all members of the merged entity”. (Chappell, 2010) This highlights the fact that the merger is adding value for the shareholders as their return per share is increasing and also creating a potential to earn higher return in the future. The value added can be viewed from the rise in share prices of AWB which rose “by 3.7% to 99 cents on the announcement of the merger”. (Pugh, 2010) This shows the positive sentiments the merger is creating and is bound to grow on the day the merger goes through. The merger will help to create value as can be seen that the proposed merger is making other foreign companies excited. Information is also drawn from the fact that some companies are looking towards placing a bid of 1.1 billion seeing the strong global network and supply chain that can be developed”. (Hextall, 2010) Thus the merger is helping to create value for the company and also the stock holder. This will thereby help to create a positive impact which will see share prices rising further and the demand for grains from the rest of the world highlights a bright future. Conclusion The proposed merger between AWB Limited and Grain Corp will help the Australian economy to get a larger withhold of the world market and create an opportunity where it will be able to get better rates for the grain. This proposed merger thus faces some obstacle form the Australian Competition & Consumer Commission (ACCC) but the findings suggest that the merger will pass through and will help to create a strong foothold by raising value for both the shareholders and the company. References Allan, 2010, “The ACCC and the Trade Practices Act”, Charles Stuart University, Australia AWB Limited, 2010, “AWB Limited Company Website”, retrieved on September 22, 2010 form www.awblimited.com.au APP, 2010, “AWB, Grain Corp to merge”, Breaking News Article, Fair fax Media Chappell T, 2010, “AWB, Grain Corp set to merge”, AAP News Limited, Australia Fels, 2010, “ACCC gives Grain Co/ Crain Corp merger go ahead”, Breaking News Article, Fair fax Media Grain Corp, 2010, “Grain Corp Company Website”, retrieved on September 22, 2010 from www.graincorp.com.au Grain Corp & AWB, 2010, “Grain Corp Limited and AWB Limited proposed merger”, Investors Relation, Australia Hefferman B, 2010, “Monopoly fears in Grain Corp, AWB Merger”, The Australian Financial Review Hextall B, 2010, “Analysis: Foreigners to reshape Australia wheat export industry”, Reuters McKirdy S, 2010, “Grain Corp AWB Merger”, Cooperative Research Centre for National Plant Bio security News, 2010, “Grain Corp, AWB report merge plan, to create giant agribusiness entity”, retrieved on September 22, 2010 from www.ibtimes.com.au Pugh W, 2010, “Grain Corp to buy AWB for A$803 million to supply Asia”, Bloomberg Business Week Watkins, 2010, “Grain Corp, AWB tie up will stop foreign takeover”, Business Spectacular Read More