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No quick answer to $2bn IPO overtures, says CBH

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CBH Group prepared members for a long wait before its board rules on privatisation plans proposed by the Australian Grains Champion consortium, which has enlisted the support of GrainCorp to its cause.

CBH, Australia's top wheat exporter, revealed it had on Wednesday held a meeting with Australian Grains Champion, which also includes investment manager HRL Morrison & Co among its backers.

However CBH – which handles the bulk of crops grown in Western Australia, Australia's top grain-producing state – said that the Australian Grains Champion proposal was "complex and highly conditional" and would "take several weeks to assess".

The co-operative, which faces its annual meeting of growers on Monday, said that "any process may take many months to evolve".

Stockmarket listing

The comments followed the announcement by rival GrainCorp that it had joined Australian Grains Champion, through an agreement which would see it invest up to Aus$600m in CBH, should the consortium's plans to take over the co-operative bear fruit.

Australian Grains Champion intends to acquire 100% of CBH shares through a deal which would see the co-operative's members paid Aus$600m, plus retain a stake in the group.

This Aus$600m would be funded half and half by GrainCorp, which would be able to covert its investment into shares, and half by HRL Morrison.

The deal would be a stepping stone to a stockmarket listing for CBH, in which GrainCorp would also have an option to purchase an additional Aus$300m of stock.

Deal history

GrainCorp said the investment formula it has agreed to leaves it likely be a "significant minority investor" in CBH.

Factoring in market values of about Aus$3bn (a little over $2bn) that analysts have suggested for CBH, Graincorp would end up with a stake of about 20%.

However, for CBH to agree to the deal proposed by Australian Grains Champion would require agreement by 75% of the co-operative's members – viewed by many observers as a significant hurdle – besides consent from regulators.

GrainCorp has before failed in an attempt to merge with a rival Australian grains handler, when it was in 2010 trumped by Canada's Agrium in its bid for AWB.

GrainCorp itself, meanwhile, was in 2013 the subject of a takeover attempt by US-based agricultural trading giant Archer Daniels Midland, its biggest shareholder, a bid blocked by the Australian government.

'Compelling opportunity'

GrainCorp said that its support for the Australian Grains Champion proposal, in which it saw "enormous strategic merit", offered "substantial potential to enhance the alignment and strategic relationship" with CBH.

Mark Palmquist, the GrainCorp chief executive, said: ""Our participation… potentially gives us an opportunity to contribute to CBH's growth and success in a meaningful way in the future."

"The investment presents a compelling opportunity for Western Australian growers, while also delivering opportunity for CBH, GrainCorp shareholders and Australian agriculture more broadly."

"We believe we offer significant value to CBH through our experience as a listed agribusiness, our complementary operations and grain processing capabilities."

By Mike Verdin

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