Ann: Merger Announcement , page-10

THE competition regulator is likely to require asset sales before allowing a proposed $2 billion merger between GrainCorp and AWB.

The parties expressed confidence on Friday that the deal would get through the Australian Competition and Consumer Commission, but JPMorgan analyst Stuart Jackson said in a report that GrainCorp might have to sell AWB's half-share in the Melbourne port terminal.

Other competition issues, he said, included a possible forced sale of some or all of the merged group's containerisation assets to boost competition in east-coast grain ship-loading.

Country grain storage sites under the GrainFlow banner, built to compete with GrainCorp's storage and handling sites in Victoria and NSW, might also have to be divested.

"This could see 10-15 sites sold at fire-sale valuations," Mr Jackson said, predicting up to $20 million in losses against book value.

The boards of both companies have endorsed the surprise merger, in which AWB shareholders will get one GrainCorp share for every 5.75 AWB shares, giving them a 42 per cent stake in the combined business.

The announcement resulted in AWB's termination of protracted negotiations with US-based Gavilon over the sale of its Geneva trading business and half of its local commodities management operations.

AWB chairman Peter Polson said the GrainCorp deal was a "superior proposal".

Mr Jackson was scathing about the merger, saying earnings volatility, risk and long-term shareholder value remained with AWB.

If the merger didn't proceed, the implications were far more significant for AWB than GrainCorp, he said, as it would have lost its chief executive, Gordon Davies.

Not only that, most of its capital would be invested in a business in which it had admitted it had no competitive advantage, and it would be very difficult to resurrect the Gavilon deal.

Mr Jackson also said an estimated $40m in synergy benefits from the merger overlooked the likelihood of revenue erosion.