Earlier this month, Canadian agribusiness giant Agrium Inc. (NYSE: AGU) completed its purchase of Australia’s AWB LTD for $1.24 billion. That deal was announced in August, shortly after Agrium lost out on its bid to acquire CF Industries Holdings, Inc. (NYSE: CF). AWB was one of Australia’s largest wheat exporters and, until 2008, had a monopoly on the country’s bulk wheat export business.
Agrium’s purchase of AWB included the Australian firm’s 400-store Landmark retail chain and the company’s commodity trading business. Agrium has just announced the sale of the trading business to Cargill Inc., a privately held US agribusiness behemoth. The purchase price was not stated explicitly, but Agrium estimated that combined with other bits of its commodity management businesses that are also slated for sale, the whole divestment would be valued at about $925 million. About $240 million of that price represents debt that will be acquired by Cargill.
Agrium acquired AWB for the retail stores, not for the commodity trading business. The company did not follow the path of Potash Corp. of Saskatchewan (NYSE: POT), or Monsanto Corp. (NYSE: MON) or Mosaic Co. (NYSE: MOS) which is controlled by Cargill, in seeking to expand its fertilizer-making capacity. Instead, it saw an opportunity to move downstream into the retail channel and it says it “will continue to focus on the successful integration of Landmark in a timely and effective manner.”
Agrium, Potash Corp., and Mosaic already own and operate the Canpotex, Canada’s potash export marketer. In all likelihood, it simply didn’t want to be involved with another commodity trading operation. Instead, the company gets a chance to test its ability to run a retail operation of 400 stores at a final cost of around $300 million. That’s not a huge bet for a company with a market cap of around $12.5 billion. If Agrium can make the Landmark stores pay, the company could look to other retail operations as a way to boost performance.
Agrium also announced today that it was issuing $500 million in 6.125% 30-year notes, payable in January 2041. The proceeds will be used to repay $125 million in 8.25% notes due in February 2011 and to pay for a portion of the borrowing on its revolving credit facility related to its purchase of AWB. The new debentures are unsecured and rank equally with the company’s existing senior unsecured debt.
The company’s shares fell more than -1% earlier today, but have gained about half of that back by noon. For comparison, the Market Vectors Agribusiness ETF (NYSE: MOO) is up just slightly at noon today.
Paul Ausick
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