GrainCorp shares jumped 34% yesterday after it revealed it had received an unwanted pre-Christmas approach from a bottom finishing unknown private equity investor.
Shares in the company surged early trade and were still up nearly 27% at $9.25 by at the close – a two-and-a-half-year high.
The previous two year high was $8.93 in April of this year.
GrainCorp said the all-cash $2.38 billion takeover bid came from unknown asset manager Long-Term Asset Partners (LTAP).
LTAP made an unsolicited, all-cash offer of $10.42 a share representing a 43% premium to GrainCorp’s Friday closing price of $7.30 a share.
The deal would load GrainCorp up with over $2 billion in debt.
LTAP is chaired by former ConnectEast and Transfield Services chairman Tony Shepherd (and former head of the Business Council and the government finance review of Tony Abbott back in 2014) and run by Chris Craddock.
Other directors include former Aurizon Holdings CEO Lance Hockridge and ex-Aurizon and Goodstart Early Learning non-executive director Andrea Staines.
Long Term Asset has also recruited former GrainCorp general manager of ports and Archer Daniels Midland executive Nigel Hart.
Back in late 2013, Archer Daniels Midland bid $3.4 billion ($12.40) for GrainCorp which had accepted the bid, only to see it rejected by former Abbott government Treasurer, Joe Hockey.
The bulk grain handler’s board said on Monday it would engage with LTAP with regard to an ongoing portfolio review of the company, and also assess merits of the proposal, which involves a buyback of $10.42 per share.
“The board of GrainCorp notes that it has not formed a view on whether the price offered under the LTAP proposal is at a level which it is prepared to recommend to shareholders in the context of a change of control,” the company said in a note.
“The board considers that because the portfolio review is well progressed and the LTAP proposal is not sufficiently certain, it would not be in shareholders’ interests for GrainCorp to suspend or terminate the other initiatives under assessment.”
The company also noted the “complex financing structure” of the deal involving $3.2 billion in acquisition facilities from Goldman Sachs and $400 million from Westbourne Capital.
It is the first deal from Long Term Asset Partners which proposes buying GrainCorp using debt from Wall Street giant Goldman Sachs (acquisition facilities worth $3.2 billion) and infrastructure debt investor Westbourne Capital ($400 million), and then setting up an “investment grade” capital structure. No doubt that will have attractive tax advantages.
The bid is certainly opportunistic as GrainCorp shares have been under pressure from the East Coast drought which is spreading from NSW and Queensland into Victoria.
Profit in 2017-18 dropped 43.7% to $70.5 million.
Only a strong performance from its barley and malting business kept earnings positive.
But a rise in malt and oil revenue in 2917-18 failed to offset a $380 million drop in grain earnings, thanks to the growing impact of the drought.
GrainCorp said it was looking to maximise the craft beer-fuelled global malt portfolio via consolidation or an ownership separation of assets (spin-off).
