DBRS Comments on Agrium Disposition of AWB Commodity Management Business

DBRS notes today that Agrium Inc. (Agrium or the Company) has reached a definitive agreement with Cargill, Incorporated (Cargill) for Cargill to acquire a majority of the commodity management businesses of AWB Limited (AWB). The purchase price to be paid by Cargill will be the net asset value of the acquired businesses as at the completion date of the transaction (expected in the first half of 2011) plus a premium. The proposed transaction remains subject to meeting closing conditions and obtaining regulatory approvals. In addition, Agrium has indicated that it is still evaluating the disposition of certain other businesses that form part of the commodity management businesses that are not being acquired by Cargill. In aggregate, Agrium indicates an AU$925 million estimated total value at September 30, 2010, for the commodity management businesses that it intends to divest, including AU$685 million for assets to be sold and approximately AU$240 million in indebtedness related to the businesses that would be assumed by the acquirers. Agrium acquired AWB on December 3, 2010, for approximately AU$1.236 billion in cash and the assumption of AWB’s indebtedness, which amounted to AU$0.652 billion at September 30, 2010.

The AWB assets to be retained by Agrium, primarily the Landmark rural services operation, generated EBITDA of approximately AU$69 million for the year ended September 30, 2010. Agrium estimates that this could increase to approximately AU$81 million in 2011 under similar market conditions to 2010 and including synergy gains and net of transaction costs. Landmark could achieve AU$109 million in EBITDA assuming similar market circumstances and a full AU$40 million in target synergy realization. Agrium has also expressed its belief that the retained Landmark portion of the AWB acquisition will be significantly accretive to the Company’s earnings in 2011. DBRS expects that the net price paid for AWB after disposition of the commodity management businesses will be adequately supported by the earnings expected.

In its November 23, 2010, press release on Agrium, DBRS stated that the overall AWB acquisition would complement Agrium’s existing retail business as well as enhance its business presence in the Australian and New Zealand markets, constituting a positive addition to the Company’s business profile. If completed as contemplated, DBRS considers that Agrium’s sale of the AWB commodity management businesses would be positive for the Company, reducing the overall size of the long-term financing required to fund the AWB acquisition and disposing of the main business lines that appear to least fit the Company’s current business profile. Although a positive development, the successful sale of the commodity management businesses of AWB is not expected to have an impact on the BBB Stable rating of Agrium’s Senior Debt.

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The applicable methodology is Rating Mining, which can be found on our website under Methodologies.