GrainCorp to demerge its global malting business

GrainCorp shares jumped on plans to spin off its global malt operations, which supply brewers, and combine its grains and oils businesses.

GrainCorp is spinning off its global malting business. Pic: ANDY ROGERS

Takeover target GrainCorp is set to demerge its global malting business into a separate listed company and combine its grains and oils businesses as it looks to unlock shareholder value.

The move comes as GrainCorp is fending off a $2.9 billion takeover approach from the Tony Shepherd-backed Long-Term Asset Partners, which has been conducting due diligence on the grains handler and exporter since January.

The planned spin-off would create MaltCo, a global malting and craft brewing distribution business, while GrainCorp would be rebranded New GrainCorp, with its focus to remain on domestic and international grain handling, storage, trading and processing.

GrainCorp’s malting business supplies breweries and distillers worldwide.

If approved by shareholders, MaltCo will be the world’s fourth largest independent maltster with malting houses in the United States, Canada, Australia, and the UK, Graincorp told the ASX.

GrainCorp shares were 3.5 per cent higher at $9.62 at Midday (AEDT), edging towards last month’s near two-year high of $9.87.

The proposed changes are expected to deliver annualised cost saving to GrainCorp of approximately $20 million.

“The board believes that the demerger would unlock significant value for shareholders by establishing two unique and high quality ASX-listed agribusinesses with focused management teams able to pursue independent strategies and growth opportunities,” GrainCorp chairman Graham Bradley said in a statement.

Following the demerger, New GrainCorp, comprised of GrainCorp’s grains and edible oils businesses, will operate the largest grains storage, transport and marketing network in eastern Australia as well as Australasia’s largest integrated edible oils business.

It will have a strategic focus on building its origination network, and will evaluate the potential of using a grain production derivative instrument to reduce cash flow volatility linked to grain harvest volumes.

The spin off of the demerged malt company is targeted for completion by the end of the 2019 calendar year.

Reporting its full-year results in November, GrainCorp said the outlook for its malt business remained positive, with ongoing demand for craft and Mexican-style beers.

GrainCorp’s malting business supplies the growing craft beer sector. Pic: AFP

GrainCorp said it continues to engage with parties who have expressed interest in acquiring parts of its portfolio, and that it would assess any proposal received from Long-Term Asset Partners, though it was yet to receive a formal bid from the company.

GrainCorp announced a portfolio review last year and flagged possible asset sales to improve its performance, amid a drought that slashed the east coast harvest.

“Our portfolio review made clear that these businesses have different characteristics and would benefit from operating separately,” chief executive Mark Palmquist said today.

“A demerger would provide both MaltCo and New GrainCorp with increased flexibility to implement independent operating strategies and capital structures and allow them to attract investors with different investment priorities.”

The assets comprising New GrainCorp generated an earnings before interest, tax, depreciation and amortisation of about $125m on average from fiscal year 2014 through to 2018, GrainCorp said.

New GrainCorp is also expected to benefit from a range of initiatives already being delivered by the grains business unit, which are expected to increase earnings before interest, tax, depreciation and amortisation by $55-80 million per annum.

Those initiatives included operational improvements in grain stocks management and new rail contracts, as well as supply chain integration and an expanded international footprint in Canada, Ukraine and India.

In addition, the oils business was expected to increase EBITDA by between $15m and $25m, with ongoing benefits from foods and improvements to management of crush margin.

In November, the company delivered a full-year statutory net profit after tax of $71m, down from $125m the prior year, partly due to challenging conditions in its grains business due to the drought.