Shares in AWB and ABB Grain have surged since the two companies confirmed they were in talks about a possible merger that would create an agribusiness giant.
ABB's shares shot up by $1.07, or 16.5pc, to close on Friday at $7.56. AWB rose 22¢, or 6.9pc, to $3.41.
Analysts greeted the move.
ABN Amro's Belinda Moore said it was the combination of companies "we have been flagging for some time".
But the sector was now in play.
"We cannot rule out another bidder, maybe an international agricultural company," she said.
Austock Securities analyst Paul Jensz said rationalisation in agriculture was inevitable, whether it was in dairy, beef or grains.
Both companies will do due diligence on the merger, and if the two boards favour the move, they will proceed to a scheme of arrangement.
This would be subject to shareholder, court and regulatory approvals, with the whole process likely to take at least six months.
A merger would create a company with a market capitalisation of about $2.5 billion and a position in the ASX top 100.
AWB and ABB are respectively Australia's biggest wheat and barley exporter, and this year changed their shareholder structures, a move that enables further mergers to happen in the agribusiness sector.
The scrapping of AWB's monopoly over bulk-wheat exports has dramatically changed the grains landscape, with 20 companies this year registered to export bulk wheat.
The outlook for both companies has improved, with each recording strong profits in 2007-08 despite the drought.
AWB owns a lending business to farmers, 22 grain depots, a 50pc stake in the Melbourne Port Terminal and divisions in India, Brazil and Switzerland.
Its Landmark division, with 400 outlets, is Australia's largest distributor of farm merchandise and fertiliser.
ABB Grain owns Joe White Maltings, which controls about 9pc of the global market for the beer-making ingredient.
It has 113 depots, a 50pc stake in Australian Bulk Alliance and operations in Ukraine and New Zealand.
Ms Moore said the larger group would have greater balance sheet capacity and would be better positioned to participate in the deregulated wheat export market.
"It would also allow them to become a more powerful force in a competitive global marketplace," she said.
Ms Moore said revenue and cost synergies should be substantial.
"AWB wants the infrastructure (ports and storage and handling assets) in South Australia's export-oriented market," she said.
"We believe that ABB wants the Landmark distribution network, given it is the 'face to the grower'."
Mr Jensz said ABB's "heavy assets" — its storage and handling facilities — would be important in any merger, and AWB, with a more service-oriented model, had turned its ship around.
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