Takeover target GrainCorp to split business, engaging with suitors
* Company to split in two, demerge malting business by
* New GrainCorp to focus on integrated grains, edible oils
* No update from bidder LTAP; still engaging with suitors
(Updates shares, adds analyst comment)
By Paulina Duran
SYDNEY, April 4 (Reuters) - Australian takeover target
GrainCorp Ltd said on Thursday it plans to separate in
two, spinning off and listing its global malting unit and
restructuring its grain business, whose earnings have been hit
At the same time, GrainCorp said it is still engaging with
suitors vying for parts or all of the company, including little
known asset manager Long-Term Asset Partners (LTAP), which last
year made a A$2.38 billion ($1.69 billion) takeover offer.
The split would let the two companies pursue "independent
operating strategies and capital structures, and allow them to
attract investors with different investment priorities,"
GrainCorp Chief Executive Mark Palmquist said in a statement
Shares in Australia's biggest listed bulk grain handler rose
as much as 5.3 percent in early trade before closing up 2.1
percent at A$9.50 in a slightly weaker overall market.
That was still below LTAP's A$10.42 per share offer last
year, which came amid a drought that has wilted crops across
Australia's east coast and slashed earnings from international
GrainCorp said it expected the move to unlock significant
value. James Ferrier of stockbroker Wilsons said in a note to
clients it was "unclear whether the demerger plans increases or
decreases takeover prospects."
The spun-off company, dubbed MaltCo, contributed more than
half of GrainCorp's earnings last year. It would be the world's
fourth-largest independent maltster with malting houses in the
United States, Canada, Australia and Britain, serving the
specialty malt, whisky and craft beer markets.
The new GrainCorp, would focus on grains and edible oils
production after the demerger, winning annual cost savings of
about A$20 million a year.
To help reduce cash flow volatility related to harvest
volumes, it would also look at using derivative instruments to
protect earnings. GrainCorp did not disclose the cost, or how
much earnings upside the company would potentially forgo.
The MaltCo businesses grew earnings before interest, tax,
depreciation and amortisation (EBITDA) by 6 percent to A$170
million last year, while EBITDA at the new GrainCorp's grain and
oils business more than halved to A$101 million.
"GrainCorp was always an M&A stock - everybody was waiting
for some kind of acquisition play to eventuate, even if most
agri stocks are trading at a discount," said Nathan Bell, a
portfolio manager at InvestSmart.
GrainCorp said it continued to engage with parties who had
expressed interest in its business, including LTAP, but it had
not received a "definitive" update from the group.
"There remains potential for GrainCorp, MaltCo or other
portfolio businesses to be sold," the company said.
Last month it sold its bulk liquid terminals business for
GrainCorp said its chief executive Palmquist would resign
once the demerger is complete in late 2019 and become CEO of
A spokesman for LTAP said it was still conducting due
diligence, but declined to comment on the demerger announcement.
($1 = 1.4051 Australian dollars)
(Reporting by Paulina Duran in Sydney, additional reporting by
Tom Westbrook and Aditya Soni; editing by Tom Brown and Richard
First Published: 2019-04-04 02:41:25
Updated 2019-04-04 09:16:19
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