GrainCorp says Wylie breakup plan doesn’t qualify as rival proposal requiring response
GrainCorp says a breakup plan presented by John Wylie is not a rival takeover proposal requiring a formal response.
Takeover target GrainCorp says a breakup plan presented by investment banker John Wylie is only a part of the plans it is considering as an alternative to the $2.4 billion cash bid from Long-Term Asset Partners and is not a rival proposal requiring a formal response.
Mr Wylie, a shareholder in GrainCorp through Tanarra Capital, presented a proposal to deterge the grain storage, transport and terminals business, sell the edible oils business and leave a stand-alone company focused on malt and bulk liquid terminals.
He said the plan would be worth “a lot more” than the $10.42 a share offer from LTAP and would not expose the company to the potential risks of a highly leveraged ownership structure.
Mr Wylie conceded that the proposal set up a “classic contest” between short term returns from the LTAP bid, which is pitched at a 42 per cent premium to the pre-bid shareprice, and the medium term.
The offer unpicks a diversification strategy executed by former chief executive Alison Watkins, who purchased the malt, edible oils and bulk liquids storage businesses to offset the volatility of the east coast grains harvest.
In a letter to GrainCorp this week describing the proposal Mr Wylie said the company’s shareprice had become a derivative play on the weather and crop predictions, despite 60 per cent of profit coming from malt and oil in an average year.
It was 90 per cent of profit for the year to September 30, with the east coast drought decimating harvest and forcing the company to import grain from Western Australia.
Mt Wylie said his proposal would leave shareholders with 10 of value as well as a potential control premium of $2.50 a share and allow shareholders to keep the $2.50 control premium implied by the bid.
The proposal comes as GrainCorp is negotiating terms for due diligence with LTAP, which is a group of prominent Australian business people backed by Goldman Sachs and what is said to be a major insurer.
The bid is reported to use insurance to smooth the volatility of the gran handling division’s earnings and turn the company into an investment grade credit.
But the highly-leveraged structure of the bid — variously reported at 80 per cent and 100 per cent of the $3.6 billion bid value (including GrainCorp’s balance sheet debt) — has sparked criticism that a valuable piece of national infrastructure could be at risk.
Mr Wylie, a former investment banker with Lazard and Carnegie Wylie who now chairs the Australian Sports Commission, said he had discussed the proposal with GrainCorp chair Graham Bradley a number of times in recent months.
Tanarra runs four investment funds, including one that aims to take stakes in public companies and unlock long term value in the way private equity investors do away from public markets.
GrainCorp revealed the LTAP bid on Monday but also surprised shareholders with details of a portfolio review it said had been under way for a year. The review includes potential asset sales, acquisitions and asset spin-offs.
A spokesman for GrainCorp said the Wylie presentation and letter did not amount to a formal proposal that required an official response from the company.
GrainCorp shares closed 9c higher at $9.21.
