GrainCorp lays out details of plan to demerge malting business

GrainCorp believes it can produce two successful listed businesses if a plan to demerge its malting operations gets shareholder approval.

Safe return: GrainCorp says diversifying it’s purchasing operations will cut the risk of grain marketing.

GRAINCORP believes it can mitigate the risks of returning to a pure-play grain marketing and handling company after the proposed demerger of its malting business.

The company released its demerger scheme booklet last week, detailing how the company would be split into separate grain and malting businesses and the risks associated with the deal.

Under the demerger proposal, shareholders would receive one free share in United Malt Group Limited for each share they hold in GrainCorp.

Ironically, GrainCorp began buying its malting assets in 2009 to ameliorate the risk of drought on its grain handling business.

In the scheme booklet, the company said it could mitigate these risks by diversifying its international grain purchasing operations to fulfil export contracts, plus through its contract with Aon Inc subsidiary White Rock Insurance to insure against east coast crop failure due to cyclical weather conditions.

Under the 10-year deal with White Rock Insurance, GrainCorp gets paid pro rata payments according to crop size up to $80 million if the east coast winter grain crop falls below 15.3 million tonnes.

But if the crop exceeds 19.3 million tonnes, the grain company makes pro rata payments to White Rock Insurance up to a maximum of $70 million.

GrainCorp said the insurance contract would smooth out the company’s cash flow.

A vote on the demerger scheme will be held at two consecutive meetings in Sydney on March 14.

The first will be a demerger scheme meeting to vote on splitting into two companies.

The GrainCorp board needs approval by more than 50 per cent of shareholders and 75 per cent of the votes cast.

The second meeting on a capital reduction is contingent on the merger being approved, and only has a 50 per cent vote hurdle.

If shareholders approve the scheme, United Malt Group would begin trading on the ASX on March 24.

GrainCorp chairman Graham Bradley said the company’s directors unanimously recommended shareholders support the proposed split of the business.

“The GrainCorp board believes the demerger has the potential to unlock significant value for GrainCorp shareholders by creating two high quality, ASX-listed agribusiness companies, each with management teams focused on pursuing independent strategies and growth opportunities,” he said.

“GrainCorp will retain a minority ownership interest of 10 per cent in UMG.

“This will provide GrainCorp additional balance sheet resources and financing flexibility.”