Australian wheat exporter AWB Ltd, the former monopoly in the field, is reported to be in merger talks with ABB Grain Ltd.
If successful, the transaction would create Australia's largest grain shipper at a time when industry deregulation is attracting global traders.
AWB said in a statement that there is no assurance of the talks ending in an agreement. The Adelaide-based ABB Grain, which is Australia's largest exporter of barley, too confirmed that talks were on. Shares of both companies surged to a combined market value of A$2.5 billion ($1.6 billion).
AWB shares were up around 6.9 per cent at A$3.41 on the Australian stock exchange, while ABB Grain gained a record 16 per cent to A$7.56.
In July, the Australian government had decided to allow multiple wheat shippers, including foreign traders such as Marubeni Corp.
This move has pressured Australian exporters to explore merger options, as agricultural companies globally are looking at acquisitions, being optimistic about the fact that the global financial crisis would not impact surging food demand.
Australia is the world's sixth-largest wheat exporter. It drew up new grain export laws after AWB lost its monopoly over paying kickbacks to Iraq to win sales.
Among 20 companies that won accreditation to export wheat in bulk, Louis Dreyfus & Cie SA and Glencore International AG are part of the list.
Eastern Australia's biggest grain handler GrainCorp had failed in its attempt to takeover Ridley Corp., Australia's largest stockfeed manufacturer, after equities plummeted.
The global credit crisis has limited access to debt, and has increased the cost of borrowing in the wake of financial companies writing down around $969 billion that include credit-market losses since last year.
Both companies, after their due diligence on the merger, will proceed to a scheme of arrangement if their boards favour the move. The proposal would be subject to usual shareholder, court and regulatory approvals, and is likely to pan out in six months or more. The combined entity created would have a market capitalisation of around $2.5 billion, and a rank in the ASX top 100.
AWB also owns a lending business to farmers, 22 grain depots, a 50 per cent stake in the Melbourne Port Terminal and divisions in India, Brazil and Switzerland. It has a 400-outlet strong Landmark division that is Australia's largest distributor of farm merchandise and fertiliser.
ABB Grain owns Joe White Maltings, a company in control of around nine per cent of the global market for the beer-making ingredient. It has 113 depots, a 50 per cent stake in Australian Bulk Alliance and operations in Ukraine and New Zealand.
Both companies insist that it is not a done deal yet, and would only progress if ''appropriate terms can be agreed and due diligence is completed to each party's satisfaction."