Viterra Australia - What Might Happen Down Under?

First, a recap of some of Viterra's history. Its predecessor, Saskatchewan Wheat Pool (Pool or SWP), was a grain handling co-operative formed in 1924 to help combat what was perceived at the time to be the unfair pricing and marketing of farmers' wheat. The Pool grew to be the major grain handling company in western Canada with nearly 60% of the provincial grain handlings. After a decade of declining profitability in the 1980s, the Pool realized in the early 1990s that it had to consolidate and modernize its grain handling network, and grow its business lines, if it was to successfully deal with trade liberalization, rail deregulation, potential CWB changes and the emergence of new competitors (e.g., ConAgra, LouisDreyfus, Bunge, producer-owned terminals). In 1996, the Pool began trading its shares on the Toronto Stock Exchange; it also launched massive investments in a new elevator system and in new value-added enterprises (e.g., hog barns, international terminal operations, grain processing). Debt loads mounted and the Pool began losing market share and incurring large losses. In 1999, the CEO and COO were asked to resign and Mayo Schmidt was brought in as CEO. After a massive divestment and a $405 million debt restructuring in 2003, the Pool eventually converted to a corporation in 2005. In 2006 it succeeded in a bidding war with Richardson International to acquire Agricore United. The newly merged company was named Viterra. With the number one and two ranked Canadian grain companies now merged into one, it was only a matter of time before Viterra would look for international investments.

The ABC reporter raised two broad questions about Viterra's takeover of ABB Grain. First, given the severe financial troubles that SWP got into in the late 1990s, is there a concern that the same thing could happen again? Second, what would be the impact on Australian farmers of the merger?

There are at least two perspectives on the first question. On the one hand, Mayo Schmidt and his management team were not part of the poor investments and bad business decisions of the 1990s that lead to the Pool almost going bankrupt. Rather Mayo Schmidt was brought in to rescue the company and he was successful in doing so. On the other hand, research indicates that, on average, merger acquisitions do not go well. Acquiring companies most always overpay for their acquisitions. While SWP/Viterra seems to have been successful in incorporating Agricore United into its operation, it remains an unanswered question as to whether Viterra has paid too much for ABB Grain and whether the promised synergies of the merger can actually be realized.

As for the impact on Australian farmers, the experience in Canada may shed some light. When SWP bought Agricore United in 2006 most farmers appeared not to be concerned about a loss in competition as they often had three companies to which they could market their grain. Now, a few years later, the concerns about competition and service appear to be more prevalent, at least if the sharp increase in the use of producer cars is any indication. And there are farmers who are located in areas where SWP and Agricore United were the only options; these farmers are likely feeling the lack of competition created by the merger.