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GrainCorp planned demerger to raise questions over Long-Term Asset Partners takeover

ASX-listed GrainCorp has received ‘no recent definitive update’ on LTAP’s mysterious A$10.42-per-share offer.

GrainCorp has announced a plan to spin off its global malting business into a separate listed entity while engagement with Long-Term Asset Partners over its takeover bid continues in parallel.

The proposed demerger would result in two independent companies listed on the Australian Securities Exchange: the newly-created MaltCo, a global malting and craft brewing distribution business; and New GrainCorp, a domestic and international grain handling, storage, trading and processing business focused on grains, oilseeds, pulses, edible oils and feeds.

MaltCo would immediately become the world’s fourth-largest independent maltster with operations in the US, Canada, Australia and the UK. GrainCorp said in a statement to the ASX that the business generated EBITDA of A$170 million ($121 million; €108 million) in FY18.

The New GrainCorp business would still operate the largest grain storage and transport network in eastern Australia and continue to focus on developing its global grains and oilseeds network, the firm said.

New GrainCorp is also considering implementing a “grain production derivative instrument” to reduce cashflow volatility linked to grain harvest volumes. This would see the business receive cashflow protection when production is lower than an agreed threshold, in exchange for an annual fixed fee and payments to the derivative counterparty when production is above an agreed threshold.

The firm already has an executed indicative term sheet for this long-term grain derivative from an unidentified “leading global insurer”, it said. This element of the demerger echoes Long-Term Asset Partners’ reported arrangement with insurer Allianz to smooth out volatility in GrainCorp’s grain handling operations as part of its takeover bid.

GrainCorp said discussions on the grain derivative are ongoing and the demerger is “not a requirement” for the demerger to proceed.

LTAP separately offered A$10.42 per share last year for 100 percent of GrainCorp in a deal worth approximately A$2.4 billion. Goldman Sachs is providing A$3.2 billion in acquisition facilities for the deal, while infrastructure debt specialist Westbourne Capital has committed A$400 million of debt financing.

GrainCorp said it has received “no recent definitive update” from LTAP on the status of its bid and that it continues to engage actively with parties that have expressed an interest in acquiring parts or all of the GrainCorp portfolio. LTAP has been conducting due diligence on its bid since mid-December 2018.

LTAP did not respond to a request for comment on whether its current bid is likely to progress or whether it would target a buyout of the demerged New GrainCorp business.

GrainCorp also announced the sale of its Australian bulk liquid terminals in March 2019, which is set to proceed in parallel to the demerger. ANZ Terminals purchased those assets for an enterprise value of approximately A$350 million, with the deal conditional on GrainCorp not entering into a change of control transaction or material alternative transaction before 10 May 2019.

At the time of that announcement, GrainCorp chairman Graham Bradley said LTAP’s proposal remained “indicative” and “non-binding” and there has been no update since to change that.

The demerger is expected to be completed before the end of calendar year 2019. Further details of New GrainCorp’s proposed capital structure will be released once the sale of the bulk liquid terminals has completed and evaluation of the proposed grain derivative has been finalised.