Drought claims another corporate victim. Grain group, GrainCorp is to split itself in half as the company’s core business continues to be assaulted by the bitter drought across much of Eastern Australia.
The company has already attracted corporate interest because of its weakened finances – but that hasn’t gone anywhere because the supposed bidder’s proposals are so outlandish that no one will back them.
Earlier this year GrainCorp confirmed that it was thinking of splitting itself up and selling off some businesses. It has said (and repeated yesterday) that there had been some approaches from an interested buyer.
Now the big split has been confirmed by the company and the CEO has given a big hint which of the two businesses will do better.
GrainCorp will split itself into a grains business by demerging its malting business and list it on the ASX – much in the same way that Wesfarmers spun off Coles in later 2018.
Shares in GrainCorp jumped 5% yesterday after the news was made public but then fell back to close at $9.50, up just 2.1%.
Speculation about the spin-off has been in the market now for several months, so the confirmation yesterday wasn’t a big deal.
The spin-off would create MaltCo, a global malting, and craft brewing distribution business, while GrainCorp will continue to focus on domestic and international grain handling, storage, trading, and processing.
If approved by shareholders (and it will), MaltCo will be the world’s fourth-largest independent maltster with malting houses in the US, Canada, Australia, and the UK.
That will see considerable interest from other companies in the sector.
GrainCorp, Nufarm, Incitec Pivot are among the companies involved in rural Australia that have been impacted by the drought – or floods made worse by falling on drought-ravaged country in North Queensland – in the past year.
The company said the demerger would save new GrainCorp about $20 million a year.
“Our portfolio review made clear that these businesses have different characteristics and would benefit from operating separately,” Graincorp chief executive Mark Palmquist said.
“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.”
On demerger, Mr. Palmquist will become managing director and CEO of MaltCo – that’s the big tip where the future growth will come from or a takeover.
While he will remain GrainCorp CEO until a deal is completed, Mr. Palmquist has resigned as managing director and has stepped down from the GrainCorp board.
He will be replaced by Klaus Pamminger, currently, group general manager of grains, who has been appointed chief operating officer of GrainCorp and after the spin-off will succeed Mr. Palmquist as CEO.
GrainCorp is targeting a demerger by the end of the 2019 calendar year, with shareholders to receive MaltCo shares in proportion to their shareholdings in GrainCorp, while also retaining their GrainCorp shares.
Last month, GrainCorp planned to sell its Australian bulk liquid terminals business to ANZ Terminals for $350 million.
GrainCorp said it would continue to engage with parties who have expressed an interest in buying part or parts of GrainCorp’s portfolio, including Long-Term Asset Partners, who put in an all-cash $2.4 billion takeover bid in December.
Graincorp said yesterday it had received no recent definitive updates from LTAP.
