LTAP Pulls US$1.8B Cash Bid For Australia’s GrainCorp

Australia’s GrainCorp has announced that Long-Term Asset Partners (LTAP) has pulled its non-binding A$2.4 billion (US$1.8 billion) bid for the company. Australia’s largest listed crop handler announced the unsolicited cash takeover offer of A$2.38 billion ( US$1.8 billion) in early December 2018.

Newly formed LTAP is backed by Goldman Sachs Group, and has been launched as an asset manager for a trust benefiting Australian investors. It is headed by the former president of the Business Council of Australia,Tony Shepherd, and by the former CEO of rail freight company Aurizon Holdings Ltd., Lance Hockridge, along with directors Andrea Stains and Chris Craddock, and former ADM executive director and GrainCorp general manager of ports, Nigel Hart.

The original deal was complex, including acquisition facilities totaling A$3.2 billion from Goldman Sachs Group and another A$400 million being forwarded by Westbourne Capital – leading GrainCorp’s Board to express in a statement at the time, the need for further review of LTAP’s backers and its long-term financing plans and intentions, noting in a company statement, “…the Board requires additional information on the identity of the equity investors underpinning the LTAP Proposal as well as the longer term financing plan and intentions for the business, to enable a detailed assessment of the impacts of the LTAP Proposal on all of GrainCorp’s stakeholders including our shareholders, grower customers, trading partners and our people.”

In a move to lessen further disquiet, LTAP stressed its Australian credentials; a move which spoke to ADM’s failed $2.55 billion takeover of GrainCorp in 2013, which was denied by the Australian government on the grounds that it did not meet national interest requirements.

GrainCorp assured at the time that it would consider the offer, and undertake a period of conditional due diligence to answer various questions regarding LTAP’s backers, the financial structure of the deal, and its adherence to Australian regulatory requirements as it conducts an ongoing Portfolio Review.

In the ensuing months, GrainCorp has engaged with LTAP to assist in this due diligence, looking to develop a binding offer to present to the GrainCorp Board of Directors. However, on May 6, the company announced in a statement that “LTAP is unable to proceed with its non-binding offer, indicative proposal to acquire 100 percent of the shares in GrainCorp.”

In a separate release, Tony Shepherd, chairman of LTAP, said, “Had due diligence supported our operational assumptions, we are confident we would have turned the LTAP proposal into a binding offer as contemplated,” reported Reuters.

Despite the falling out of the deal, GrainCorp said it will continue in its Portfolio Review that was behind the company’s announcement in April of this year of its intentions to split the company into two distinct businesses.

The demerger will create two independent companies: one will be MaltCo, a free standing maltster that will rank fourth in the world with malting operations in the U.S, Canada, Australia, and Britain, including Country Malt Group, the company’s North American craft malt distribution business, serving the whisky, specialty malt, and craft beer industries.

By splitting the company, Grain Corp believes the move will unlock significant value, resulting in separate units with discrete structures and the ability to better attract investors who have specific priorities.

It also said that it expects annual savings of approximately A$10 million (US$7 million) through integrating New GrainCorp’s grain and edible oil businesses, and another A$10 million (US$7 million) in savings generated by “business simplification initiatives” resulting from the spin-off.

Once on its own, MaltCo will be the largest malting company in Canada, with assets consisting of malting plants in Calgary, Montreal, and Thunder Bay, nine elevators across three Prairie provinces, and Country Malt plants in British Columbia and Ontario; all of which fall under Calgary-based Canada Malting, producing 400,000 tons of malt per year.

The second, New GrainCorp, will be an Australian domestic and international grain handling, storage, trading, and processing company focused on grains and edible oils that will be backed by a derivative scheme to mitigate further risk from situations such as drought.

“Our Portfolio Review made clear that these businesses have different characteristics and would benefit from operating separately,” said Mark Palmquist, CEO, GrainCorp. “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.”

The company is apparently also moving forward with the sale of its Australian Bulk Liquid Terminals (ABLT) business to ANZ Terminals Pty Ltd. in a deal announced this March valued at A$350 million (US$248 million); its investment in the Fraser Grain Terminal in Vancouver, Canada; and its initiatives to increase through-the-cycle EBITDA in its Grain Business.