Australia's GrainCorp agreed to buy smaller rival AWB for A$855 million ($770 million) to become the country's biggest wheat exporter.

The merger would create a combined Australian group with a market capitalisation of more than A$2 billion and the largest diversified agribusiness with annual sales of over A$7 billion, enabling it to take on rivals like Bunge Ltd, Glencore, Viterra Inc and Cargill in exporting wheat to Asia, North Africa and the Middle East.

Under the deal that was announced late Friday, Sydney-based GrainCorp will issue one of its own share for every 5.75 AWB shares, a premium of 9 per cent to 28 July closing price, valuing each share at A$1.047 and the deal at A$855 million.

GrainCorp shareholders would hold 58 per cent of the merged company and AWB 42 per cent.

Post merger the headquarters of the combined company will be located at Sydney with 11 directors, six from GrainCorp and four from AWB plus the managing director, Alison Watkins.

AWB chairman Peter Polson will become the chairman of the merged company, with GrainCorp chairman Don Taylor to be the vice chairman and the current CEO of GrainCorp Alison Watkins will be the managing director and chief executive.

Philip Gentry, the chief financial officer of AWB will retain the same post in the combined company.

The merger is expected to cut costs by A$40 million in the first two years and boost earnings from the second year, the companies said in a presentation

Directors of both companies have unanimously supported the proposal, but have to be approved by shareholders of GrainCorp, AWB and regulators, which is likely to pan out for six months or more.

GrainCorp was founded in 1916, and was originally part of the NSW government's department of agriculture.

In 1992 GrainCorp became one of the first government organisations in Australia to be privatised, and in 1996 was the first Australian bulk handler to trade grain in the Australian domestic market.

GrainCorp operates at all points along the grain supply chain, from country storage sites, through to export terminals and supplying grain to the domestic market.

GrainCorp has more than 250 storage points with a total grain storage capacity of up to 20 million tonnes, spread across a 2,700 km footprint, from Mackay in Queensland, to Portland in Victoria.

It operates seven bulk export terminals that are serviced by 17 contracted trains and also manages more than one million tonnes of road transport each year.
GrainCorp ports handle an average of five million tonnes of grain, and up to 1.5 million tonnes of non-grain commodities per year.

Melbourne-based AWB is Australia's leading agribusiness and employs more than 2,200 people across more than 500 points of presence in Australia, India, Switzerland and Singapore to the People's Republic of China and Japan.

AWB owns a lending business to farmers, 22 grain depots, a 50 per cent stake in the Melbourne Port Terminal and has a 400-outlet strong Landmark division that is Australia's largest distributor of farm merchandise and fertiliser.

AWB was the largest Australian wheat exporter for 55 years until 2008, when it lost its monopoly over paying $221 million in kickbacks to the Iraq regime in order to win contracts under the UN oil-for-food programme, which forced the government to deregulate the industry and draw up new grain export laws.

Opening up of wheat industry saw global majors like Bunge, Glencore, Viterra and Cargill enter the Australian wheat export sector and dethrone AWB as Australia's largest exporter of wheat.

It also hurried the country's agribusiness sector to consolidate, although few domestic mergers were successful. The December 2008 merger between AWB and ABB Grain collapsed as some directors of ABB failed to grasp the benefits accrued to the grain industry with the merger. (See: Australia's AWB and ABB Grain call off merger talks) 

GrainCorp, the country's biggest grain handler, failed in its attempt to takeover Ridley Corp., Australia's largest stockfeed manufacturer, after equities plummeted with the onset of the global recession.

But GrainCorp succeeded in expanded its global presence by acquiring United Malt Hodings of the US last year for A$757 million. The deal came after ABB, Australia's largest barley exporter agreed to sell itself to Canada's largest grain handler Viterra Inc for A$1.6 billion.