GrainCorp plans to buy the world’s fourth-largest commercial malt manufacturer, United Malt Holdings from its private equity owners for $757 million, and will raise over half a billion dollars in fresh capital to do the deal.
The acquisition will transform GrainCorp into an international agribusiness with operations in Australia, the US, Canada and the UK.
Graincorp shares went into a trading halt yesterday ahead of the deal being announced, the capital raising and a trading update.
UMH is a leading global malt manufacturer, supplying malt for use in the production of beer and whisky to a number of the world’s largest brewers and distillers.
It operates 14 malt houses and produces approximately one million tonnes of malt a year, and has plans to lift production to 1.2 million tonnes.
United has been on the market for around 15 months with the Australian Financial Review and other media first reporting in August 2008 that its owners were looking for a sale.
UMH is owned by the CHAMP private equity group, which consists of Castle Harland and its affiliate CHAMP Private Equity.
Goldman Sachs and ABN Amro were running the sale in 2008 which obviously got run over the deepening financial crisis after Lehman Brothers collapsed and recession rolled across the global economy.
The website says:
"In September 2006, Castle Harlan, together with its affiliate CHAMP Private Equity, the Sydney-based private-equity investment firm, acquired Great Western Malting, Canada Malting Company, Barrett Burston Malting and a 60 percent interest in Bairds Malt to create United Malt Holdings ("UMH"), one of the world’s largest producers of malt for use in the brewing and distilling industries.
"The businesses were acquired from Conagra Foods Inc of the United States and Tiger Brands of South Africa. The remaining 40 percent of Bairds Malt was acquired in 2007.
"UMH has revenues in excess of $400 million and has approximately one million tons of annual malt production capacity from 14 plants in four countries.
" It operates in the United States, trading as Great Western Malting; Canada, trading as Canada Malting Company; Australia, trading as Barrett Burston Malting and the United Kingdom, operating as Bairds Malt. UMH is a leader in its industry, serving many of the world’s largest brewers and distillers."
The AFR reported earlier this year that the sale was back on with a suggested price of $A700 million.
Graincorp bit and it seems it probably was the move by the Viterra group of Canada to buy rival ABB Grain, that helped the NSW based grain marketer to move to expand its business.
"For a number of years GrainCorp has been examining ways of making company earnings more robust and less susceptible to seasonal variation," Graincorp chairman Don Taylor said in a statement.
"With its Australian and international operations, UMH achieves this goal by increasing and diversifying GrainCorp’s future earnings."
Mr Taylor said the deal will strengthen GrainCorp’s core business, reduce the seasonal volatility of it earnings and support its strategic objective of sustained and profitable long term growth.
"The acquisition will substantially increase the contribution to GrainCorp’s earnings from grain downstream processing," he added.
Graincorp claimed the purchase price, for an enterprise value of $757 million, represents a pro-forma fiscal 2009 earnings per share increase of 22.9% to 25.8% ahead of transaction costs and synergies.
The acquisition will be funded through a mix of equity and debt.
Graincorp is planning a $100 million placement of shares to institutions and a 9-for-10 entitlement offer to institutions and retail investors to raise $489 million.
The entitlement offer comprises a $220 million offer to institutions and a $269 million offer to retail investors.
Both share offers are fully underwritten by Credit Suisse, and Graincorp is also planning a new $US200 million debt facility.
In a separate statement, Mr Taylor and CEO Mark Irwin updated the market on the group’s 2009 earnings guidance and on its dividend plans.
GrainCorp Chairman, Mr. Don Taylor said GrainCorp’s board intended to declare a dividend for the financial year ended September 30.
Mr. Taylor said in the statement that “The proposed dividend, equivalent to 15 c per existing share, is expected to be paid in mid-December and will be adjusted to reflect the New Shares to be issued as part of the process of acquiring United Malt Holdings. This equates to a dividend of approximately $0.073 per share following the issue of the New Shares.
“The early indication by the GrainCorp Board of its intention to pay a dividend enables existing shareholders to benefit to the maximum extent from the structure of the funding arrangements put in place for the United Malt Holdings acquisition. The record date for the payment of the dividend is expected to be in early December. This date will be confirmed in late November, after finalisation of GrainCorp’s financial results for the year ended 30 September 2009."
Mr Irwin said the 2008-09 financial year net profit after tax (NPAT) guidance range “is now $60 million to $63 million and follows a strong last quarter result.
"Following two years of drought driven losses, it is pleasing for the company to return to profitability in this manner.” Previous NPAT guidance issued on 3 August 2009 was $53 million to $63 million.
“In the 2009 financial year, grain tonnage received was above our original budget, due to a combination of higher than forecast production, and the dynamics of
