Grain Corp Company Website Issues - Case Study Example

Executive Summary The proposed merger between AWB Limited and Grain Corp will help to shape the Australian economy and will lead towards creating a market leader in the food grain export business. It will result in creating synergy and help to increase the value of the shareholders and increase the bargaining power thereby fetching higher prices in the world market. The report looks into the background of both the entity i.e. AWB Limited and Grain Corp and identifies the manner the merger will help both the business giants. It also looks into the role of Australian Competition & Consumer Commission with regard to mergers and trade practices and the manner the merger will pass through. The report also looks into the manner the different accounting standards are met by the merger. The report further dwells on the SWOT analysis due to the merger and the manner the merger is creating value for the stakeholders as can be seen from the rise in share prices. This thus helps to find the value of the merger and the benefits it will accrue to the Australian economy. Contents Introduction 3 Purpose of the report 3 About the company 3 Role of Australian Competition & Consumer Commission 4 Accounting Standard 5 SWOT analysis of the proposed merger 8 Value Creation 10 Conclusion 11 References 12 Introduction The world is witnessing mergers in different form or the other. One such is the merger through Scheme of Arrangement. The report looks into the proposed merger between Grain Corp and AWB Ltd. The report presents the role of Australian Competition & Consumer Commission in the merger. It also presents the SWOT analysis based on the proposed merger and creation of value for all. Thus it presents a picture where the proposed merger between Grain Corp and AWB Ltd is going to take place and the effects due to it. Purpose of the report To deal with issues related to the merger between Grain Corp and AWB Ltd To identify the role of Australian Competition & Consumer Commission in the merger and the manner mergers gets affected due to it To evaluate a SWOT analysis of the merger so that growth potential can be found out To find the acquirer of the merger and the effect it will have on the accounting and business pattern To find the increase in value for the stakeholders About the company AWB limited and Grain Corp are both somehow related to agriculture though both business entities are into different fields. Grain Corp has it operation over entire Australia and deals in “receiving, storing, logistics and marketing of food grains and other commodities”. (Grain Corp, 2010) The company looks into the storage and logistics aspect and has a huge role to play as it ensures that food grains reach every nook and corner of Australia. The company has a policy of amalgamation which has increased it reach to far off places in Australia. AWB limited on the other hand has been in business for a long time and is a leader in grain exporter from Australia”. (AWB Limited, 2010) The company has diversified its risk by entering into different business like rural, financing and commodity. This has ensured a wider reach and the company exports grain to about 50 countries giving it a global presence. Role of Australian Competition & Consumer Commission Australian Competition & Consumer Commission (ACCC) has a huge role to play in mergers that take place in Australia. It is a government agency which ensures mergers don’t lead to concentration of power in a few hands which would lead towards unfair trade practices. The proposed merger between AWB Limited and Grain Corp is going to make the company the biggest exporter of grains in Australia having a “market capitalization to be worth 2 billion and at the same time generate synergy in excess of $40 million per annum”. (Smith & Thieberger, 2010) Grain Corp will buy AWB Ltd by “offering one share for every 5.75 AWB shares”. (Smith & Thieberger, 2010) Australian Competition & Consumer Commission (ACCC) has to ensure that this merger doesn’t result in unfair practices, the use of market power and violation of consumer rights”. (Allan, 2000) Australian Competition & Consumer Commission (ACCC) is that the merger could lead to a situation where these giants use the local condition to exploit the poor and others by creating an artificial shortage thereby driving prices up. (White, 2010) This could create a monopoly like situation which could lead towards unfair practices. Recent developments and growth on this side demonstrate that Australian Competition & Consumer Commission (ACCC) will allow the merger to go through as report from the company suggests that “Grain Corp will have no interest on the bulk alliance and will not create a monopoly like situation”. (Fels, 2010) Australian Competition & Consumer Commission (ACCC, 2010) can also use various accounting standard and practices like fair value accounting so that the merger shows the correct value of the acquired assets. This will demonstrate the correct value of the assets and create an amicable solution to the merger. Accounting Standards The proposed merger between AWB Limited and Grain Corp looks into the manner the merger looks into different aspects of accounting standards with relation to disclosure and other principles AASB 3 Para 4: Identifying the acquirer The proposed merger between AWB Limited and Grain Corp states that Grain Corp is acquiring AWB Ltd so will act as an acquirer. (Smith, 2010) The merger also shows that as “58% being of share is being held by Grain Corp and 42% is being held by AWB Limited”. (White, 2010) This thus makes Grain Corp the acquirer. This will make all legal requirements of the merger and thereafter to be taken care by Grain Corp. Grain Corp has to look towards the financial statements of the merged entity. Also all other matters in relation to the merger and affecting both the companies after the merger has to be taken care by the acquirer. AASB 3 Para 18: “Classifying identifiable assets acquired and liabilities in a business combination” The merger looks into the aspect and ensures that all the assets of both the companies are recognised and so are the liabilities. Grain Corp has also ensured that they won’t take ownership of the bulk alliance AWB has with the government. This will help in valuing the assets properly and ensure that all items are disclosed in the balance sheet. AASB 3 Para 21: Contingent Liabilities The merger has also looked into the aspect of contingent liabilities by taking steps to ensure that all the contingent liabilities are disclosed. These liabilities will be amortized over a period of time which will help to improve the disclosure principles and ensure that all the requirements are complied with. AASB 3 Para 32: “Recognising and measuring goodwill from a gain or bargain purchase” The proposed merger between AWB Limited and Grain Corp recognizes the goodwill as Grain Corp is purchasing 5.45 share for every share. This will give rise to goodwill which will be written off over a period of time. Also since the merger involves a big company acquiring a small one this will give rise to goodwill which the company has decided to write off over a period of time. AASB 101: Presenting financial statements The merger will result in conforming to the financial statements by ensuring that all relevant financials like the profit & loss, balance sheet, cash flow statement and remuneration is prepared. This will be in accordance to the prescribed format and continue in the same manner the company has being doing. AASB 127: Pre acquisition entries for business revaluations The proposed merger between AWB Limited and Grain Corp will look into revaluing the assets and liabilities and passing the necessary entries as required so that it matches the standards and all entries related to the pre acquisition merger are passed accordingly SWOT analysis of the proposed merger The proposed merger between AWB Limited and Grain Corp will help the company, economy and shareholders to garner certain benefits and will also bring certain threats which have been examined below. Strengths The merger will “reshape Australia’s wheat export industry as being the largest in the provider will provide a high bargaining power”. (Koranyi & Fernandez, 2010) This will give the economy a boost to capture a larger chunk and better prices for the grains. The merger will result in improving the condition of the company as liquidity will improve and the entity will be able to undertake bigger marketing objectives and ensure bigger sale. The merger will help to take advantage of the “global shortage the world economy is facing with regard to food grains”. (Pugh, 2010) This will strengthen their position in the world market and help Australian economy grow. The merger will help to increase the market capitalization which will “reduce the chances of takeover by foreign entities”. (White, 2010) This will thereby help to ensure that they don’t fall prey to foreign players. The merger will help to improve efficiency as the loopholes prevalent in the present system of both the companies can be filled. This will lead towards better performance and management of the food grains. Weakness Overreliance on rain for the business creates susceptibility in the future as the business could loose vital business in the future. Overreliance on the weather creates chances that the business might loose customer in the future. The merger face a weakness of going through as Australian Competition & Consumer Commission could put a hindrance in the path and result in the merger to stop midway. The quality of food grain is also a concern and since there is no defined law to produce the same quality again and again it could affect the future reputation of the company. Opportunities The global cues from the world market presents an excellent opportunity to export as the world market is facing shortage of food grains which could lead towards creating a market quickly. Opportunity to tap the growing economies like India and China which has a huge potential for food grains. Threats The merger faces threats from Australian Competition & Consumer Commission as the government agency might put obstacle on the path of the merger to go through. Increased threat from other competitors from other countries and also from Australia which could eat away their business to a certain extent as Cargill and others are looking towards a similar business model followed by the Grain Corp Limited The merger also has threat from the weather as it is unpredictable and a bad monsoon could result in losses for the merged entity which could affect their shares value and consumer confidence. Value Creation The merger between AWB Limited and Grain Corp will help in the creation of value for the stakeholders. The company is creating value as it has agreed to “pay a dividend of 10 cents per share to AWB shareholders and an additional 5 cents to all shareholders including Grain Corp”. (Maiden, 2010) Also, since AWB was looking for 35% stake but are getting a higher stake will further lead towards the generation of value for the merged entity. The rise in the value of share prices is another instrument which demonstrates growth in this part. It is seen that the growth in shares of AWB was around 99 cents which shows the value it is creating. It will also help the merged entity to place bid for other small entities making them work on a global scale. All this will be reflected in the price of the shares which will get transformed into consumer confidence and better opportunities of growth for the merged entity highlighting better opportunities in the near future. Conclusion The proposed merger between AWB Limited and Grain Corp will thus mark a history for Australia as it will help the economy to place themselves as a market leader in export of grains. This will help to fetch better prices for the grains and will be able to grow on the global cues that the world is facing shortage in food grains. The merger will also help to keep foreign companies at bay and will lead towards generating increased value for the stakeholders. References AWB Limited, 2010, “AWB Limited Company Website”, retrieved on October 1, 2010 form www.awblimited.com.au ACCC, 2010, “ACCC gives Grain Co mergers go ahead”, National Rural News, Fairfax Media Allan, 2010, “The ACCC and the Trade Practices Act”, Charles Stuart University, 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 October 1, 2010 from www.graincorp.com.au Koranyi B & Fernandez C, 2010, “Analysis: Foreigners to reshape Australia wheat export industry”, Reuters Maiden M, 2010, “Former monopolistic AWB scratches for around 35% share”, Fairfax Media, Australia Pugh W, 2010, “Grain Corp agrees to buy AWB for $769 million, adding global wheat trading”, Bloomberg Business Week Smith M & Thieberger V, 2010, “Australia’s Grain Corp buys AWB to create wheat giant”, Fox Business Network Smith P, 2010, “Australia’s Grain Corp to takeover AWB”, Financial Times, Australia White S, 2010, “AWB, Grain Corp to merge”, National Rural News, Fairfax Media Read More