AWB seeks to demerge export arm
November 29, 2006 - 10:14AM
http://www.smh.com.au/news/BUSINESS/AWB-seeks-to-demerge-export-arm/2006/11/29/1164476245884.html
"Monopoly wheat exporter AWB Ltd will separate its wheat marketing arm from its other agricultural operations as it seeks to rebuild its reputation which was severely damaged by the Iraqi wheat scandal.
Delivering AWB's key response to the Cole inquiry, AWB chairman Brendan Stewart said the group would seek shareholder approval in 2007 for the plan to split into two companies.
However, AWB's demerger plan still faces a potential hurdle as Prime Minster John Howard indicated that he was still keen on pressing ahead with major reform of the single desk wheat marketing system.
Mr Stewart will stand down as AWB chairman once shareholders approve the split.
One of the two companies will be wholly owned by wheat growers and will manage the export monopoly over wheat, otherwise known as the single desk.
The other company will be a purely commercial agribusiness firm.
"The proposed split will establish AWB International (AWB's export arm) as a wholly grower-owned manager of the national (wheat) pool," Mr Stewart said.
AWB International would retain the obligation to ensure security of payments and maximise returns to wheat growers.
AWB Ltd would provide services to the national pool, including pool operations, treasury, price risk management, and sales and marketing.
Mr Stewart said there had been issues around transparency and the closeness of the link between AWB International and the stock-exchange-listed entity, AWB Ltd.
"We want to take away any perception of conflict of interest in that process," Mr Stewart said.
The split proposal would enable AWB Ltd to become more efficient and commercially focused, with a standard commercial constitution.
Single desk operations account for about 25 to 30 per cent of AWB's earnings. The bulk of earnings come from AWB's Landmark rural services division.
AWB still believed that the national pool and AWB International's power to veto bulk exports of wheat by other parties was the best way to maximise returns to wheat growers.
Mr Stewart said more than 80 per cent of wheat growers had indicated to AWB that they wanted to retain the single desk.
The proposed demerger was predicated on AWB retaining the single desk, but its future was a matter of policy for the federal government.
"If the federal government changes its policy framework under which the industry operates, then obviously we'll have to contend with that," Mr Stewart said.
Mr Howard said AWB's move to split would not prevent an overhaul of Australia's wheat marketing system.
Mr Howard said the AWB move did not change his view "that the world cannot remain the same as a result of the Cole inquiry".
Mr Stewart said he was hopeful that people would understand that AWB was being proactive and going through a process of "self help", and that the new structure would provide wheat growers with security and certainty.
A detailed proposal for AWB reform will be presented at the company's annual general meeting in February 2007 and voted upon by shareholders at a subsequent extraordinary general meeting.
Eleven former AWB staff face possible fraud-related criminal charges for allegedly deceiving the United Nations and federal government over $290 million in kickbacks paid to Saddam Hussein's regime in Iraq under the UN's oil-for-food program.
AWB was censured in Commissioner Terence Cole's report into the affair, which released publicly on Monday.
AWB said it deeply regretted the way in which its wheat trade was conducted with Iraq, and the company was committed to making significant changes to ensure it did not happen again.
Mr Stewart said AWB Ltd expected to incur further costs in relation to the kickbacks scandal, depending on what action was taken against the company and individuals, but it was hard to quantify the costs at this stage.
CommSec senior analyst Grant Saligari said the proposed demerger of AWB's operations would result in a less complicated corporate structure.
Under the current structure, wheat farmers and other investors in AWB Ltd hold different classes of shares.
After a split, AWB Ltd would have a single share structure.
"I think it (a split) makes it a much cleaner operation," Mr Saligari said.
"It's a break from the past and sets them on a track looking at the future."
But Mr Saligari said a split may make drastic reform of the single desk by the federal government more difficult because the government would be directly up against wheat growers who would own AWB International.
Mr Saligari said that if the single desk remained, AWB would still be a service provider to AWB International for some time, and in the short term there was unlikely to be any impact on AWB Ltd's earnings."
November 29, 2006 - 10:14AM
http://www.smh.com.au/news/BUSINESS/AWB-seeks-to-demerge-export-arm/2006/11/29/1164476245884.html
"Monopoly wheat exporter AWB Ltd will separate its wheat marketing arm from its other agricultural operations as it seeks to rebuild its reputation which was severely damaged by the Iraqi wheat scandal.
Delivering AWB's key response to the Cole inquiry, AWB chairman Brendan Stewart said the group would seek shareholder approval in 2007 for the plan to split into two companies.
However, AWB's demerger plan still faces a potential hurdle as Prime Minster John Howard indicated that he was still keen on pressing ahead with major reform of the single desk wheat marketing system.
Mr Stewart will stand down as AWB chairman once shareholders approve the split.
One of the two companies will be wholly owned by wheat growers and will manage the export monopoly over wheat, otherwise known as the single desk.
The other company will be a purely commercial agribusiness firm.
"The proposed split will establish AWB International (AWB's export arm) as a wholly grower-owned manager of the national (wheat) pool," Mr Stewart said.
AWB International would retain the obligation to ensure security of payments and maximise returns to wheat growers.
AWB Ltd would provide services to the national pool, including pool operations, treasury, price risk management, and sales and marketing.
Mr Stewart said there had been issues around transparency and the closeness of the link between AWB International and the stock-exchange-listed entity, AWB Ltd.
"We want to take away any perception of conflict of interest in that process," Mr Stewart said.
The split proposal would enable AWB Ltd to become more efficient and commercially focused, with a standard commercial constitution.
Single desk operations account for about 25 to 30 per cent of AWB's earnings. The bulk of earnings come from AWB's Landmark rural services division.
AWB still believed that the national pool and AWB International's power to veto bulk exports of wheat by other parties was the best way to maximise returns to wheat growers.
Mr Stewart said more than 80 per cent of wheat growers had indicated to AWB that they wanted to retain the single desk.
The proposed demerger was predicated on AWB retaining the single desk, but its future was a matter of policy for the federal government.
"If the federal government changes its policy framework under which the industry operates, then obviously we'll have to contend with that," Mr Stewart said.
Mr Howard said AWB's move to split would not prevent an overhaul of Australia's wheat marketing system.
Mr Howard said the AWB move did not change his view "that the world cannot remain the same as a result of the Cole inquiry".
Mr Stewart said he was hopeful that people would understand that AWB was being proactive and going through a process of "self help", and that the new structure would provide wheat growers with security and certainty.
A detailed proposal for AWB reform will be presented at the company's annual general meeting in February 2007 and voted upon by shareholders at a subsequent extraordinary general meeting.
Eleven former AWB staff face possible fraud-related criminal charges for allegedly deceiving the United Nations and federal government over $290 million in kickbacks paid to Saddam Hussein's regime in Iraq under the UN's oil-for-food program.
AWB was censured in Commissioner Terence Cole's report into the affair, which released publicly on Monday.
AWB said it deeply regretted the way in which its wheat trade was conducted with Iraq, and the company was committed to making significant changes to ensure it did not happen again.
Mr Stewart said AWB Ltd expected to incur further costs in relation to the kickbacks scandal, depending on what action was taken against the company and individuals, but it was hard to quantify the costs at this stage.
CommSec senior analyst Grant Saligari said the proposed demerger of AWB's operations would result in a less complicated corporate structure.
Under the current structure, wheat farmers and other investors in AWB Ltd hold different classes of shares.
After a split, AWB Ltd would have a single share structure.
"I think it (a split) makes it a much cleaner operation," Mr Saligari said.
"It's a break from the past and sets them on a track looking at the future."
But Mr Saligari said a split may make drastic reform of the single desk by the federal government more difficult because the government would be directly up against wheat growers who would own AWB International.
Mr Saligari said that if the single desk remained, AWB would still be a service provider to AWB International for some time, and in the short term there was unlikely to be any impact on AWB Ltd's earnings."
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