AWB changes course on desk

By Gregor Heard
Updated January 5 2016 - 6:14pm, first published August 2 2007 - 11:00pm

AWB HAS dropped a bombshell by announcing it will not pursue its long-touted plan of a demerger of the existing AWB International and the listed company AWB Ltd, but will look to set up a new entity which would then be handed over to growers as part of a new wheat export system.This new single desk operator’s running costs will be covered by AWB, which believes the process will cost $10-15 million to get off the ground.AWB claims the new plan will save money and have more chance of attracting enough A and B-class shareholder votes to be passed for AWB to make the necessary changes to its constitution.However detractors of the plan say AWB is trying to set up a new organisation with close links to AWB Ltd to ensure it would get the majority of the service provision contracts once the current marketing arrangements were wound up.Like AWB’s preferred demerger proposal – since dumped by the company – the new plan is based around an essential services model.AWB chairman Brendan Stewart said an essential services model would be the lowest cost for industry.“We think growers would be best off having a model that outsources the work,” Mr Stewart said.“By tendering out services to service providers, they minimise the risk. The other major plus is that it does not need a large capital base to set up.”However, Mr Stewart said there was nothing to stop the single desk operator from expanding into a full services provider under the AWB proposal. Mr Stewart denied that the plan had been set up to provide AWB with an advantage in the tendering process, again stressing that all services would be contestable. He said any directors appointed by AWB to the new body in the interim period would only serve while the new organisation was set up and none would be chosen from the AWB Ltd or AWB International boards.In return for covering set-up costs of the marketer, AWB will phase out it’s A-class grower-owned shares.Some industry participants argue the proposal does not represent value for money.However, Mr Stewart said it was an argument that had arisen before and that clearly A-class shareholders were not entitled to more of AWB Ltd’s resources under a demerger.“The argument about intellectual property has been resolved and it is not owned by the pool,” he said.Mr Stewart said farmers had to remember any changes to the AWB Ltd constitution required 75pc approval from both A- and B-class shareholders.He said farmer groups had to consider the position of the B-Class shareholders.“A number of AWB Ltd B-class shareholders have also expressed concern about any transfer of functions to a totally separate grower-owned and controlled entity under the future wheat export marketing arrangements.” Neither the Wheat Export Marketing Alliance (WEMA) nor the Grains Council of Australia (GCA) has so far been prepared to comment on the plan, with WEMA saying it needed more time to go through the details of the AWB plan and GCA remaining silent on all wheat industry matters while WEMA is active.However Mr Stewart said AWB was hoping for an answer from WEMA, on whether it could support the proposal, by the end of August.“The March 1 deadline (handed down by the government) is a real one, and we’d need to know by the end of August to get the plan up and running on time,” Mr Stewart said.The reaction out of Canberra to the plan has been guardedly positive.Agriculture Minister Peter McGauran had no comment other than to say he was encouraged that AWB had committed to developing a new company that could be in a position to take over the management of the single desk.He cautioned it was crucial that AWB worked closely with WEMA on the issue.How the new plan will workTHE new AWB plan involves setting up a new AWB Ltd subsidiary, which will then be handed over to the new managers of the single desk.To get it off the ground, it must receive more than 75 per cent of both A and B-class shareholders at a vote to establish the entity.Although the long-term plan is to have independent directors and executive, AWB Ltd chairman Brendan Stewart said AWB would look to appoint some directors initially in the transitional phase.Under AWB’s plan, the operator will run the core of the single desk administration duties, while tendering out for services such as the marketing of the grain, logistics and grain acquisition.These operational services will be allocated under a competitive tender, which AWB has said will have the advantage of meaning the desk operator will not be exposed to as much risk.The new entity would have nothing to do with the existing single desk operator, AWB International, which would continue to run the current pools until the 2007-08 pool was finalised, likely in 2009.Not outlined in the plan is the fate of various aspects of the business developed to market Australian wheat, such as the trademarks and rights to brand names.If the vote is unsuccessful, AWB has said it will still pursue plans to normalise its share structure regardless.

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