Australia's grain handling sector faced the prospect of another foreign takeover after Canada's Agrium offered $1.1bn for AWB, trumping a rival offer from GrainCorp.

Shares in AWB soared 30% after Agrium offered Aus$1.50 per share in cash for the group, Australia's former wheat export monopoly, exceeding the value of GrainCorp's all-stock proposal by more than one-third.

A takeover by Agrium would represent the second takeover by Canadian predators alone of an Australian grain handler, after Viterra bought ABB Grain last year for $1.4bn.

In March, Japan's Sumitomo Corporation bought a stake in Emerald Group, while America's Cargill, Germany's Toepfer and Singapore-based Olam International have also expanded into the Australian market, which was deregulated two years ago, and faces calls for the removal of much of what market restrictions remain.

The approach also represents a further quest by Agrium – a fertilizer group – for acquisitions after it earlier this year failed in a year-long pursuit of American rival CF Industries.

Retail justification

Agrium, which operates a retail network as well as potash mines, said its takeover was aimed at exploiting AWB's Landmark Rural Services farm supply network.

The deal "continue Agrium's strategy of growing its retail business", Mike Wilson, the Agrium chief executive, said.

"Agrium sees significant potential to enhance the product and service offerings to the Australian and New Zealand grower… by utilising Agrium's international fertilizer and crop protection sourcing capabilities."

Shares soar 

AWB said it was sticking for now with its backing for the GrainCorp bid, highlighting that the Agrium proposal was "conditional and subject to negotiation, and may not lead to a definitive arrangement".

However, talks between Agrium and AWB executives over changing the recommendation are ongoing, and investors appeared to hold out little hope for the GrainCorp bid.

AWB shares closed up 30% at Aus$1.42 in Sydney.

GrainCorp stock added 4.2% to Aus$6.53, a rise unlikely if investors considered the group would hand vale to AWB shareholders by hiking its offer terms.

In Toronto, Agrium shares ended 1.8% lower at Can$68.81.

Export boom? 

The takeover battle, besides stoking the consolidation of Australia's more than 20 grain handlers, comes ahead of what is expected to be a jump in remand for the country's wheat from importers, after drought ravaged crops in Russia.

Analysts believe that Australia is set for a strong harvest in 2010-11, unlike many wheat exporting countries, although lingering dryness is causing concerns for the crop in Western Australia, which typically provides about 40% of the national harvest.

FO Licht last week said that Australia could see "near-record" wheat exports, while the US Department of Agriculture last week raising its estimate for the country's shipments by 1m tonnes to 16.5m tonnes in 2010-11, putting it on track to become the world's second biggest exporting country.