GrainCorp's surprise takeover suitor, Long-Term Asset Partners, has given up the chase seven months after declaring its intention to buy the big eastern states grain business for $2.4 billion.
LTAP confirmed after undertaking a due diligence investigation into GrainCorp's accounts and business structure, which began just before Christmas, it had withdrawn its non-binding indicative proposal to acquire GrainCorp for $10.42 a share.
Despite never officially launching its fully debt-funded takeover plan, LTAP has also revealed its investment in GrainCorp had already begun.
It had purchased the equivalent of about 4.2 per cent of the share stock in the company, Australia's biggest listed agribusiness with overseas operations in New Zealand, Europe, North America, India and China.
LTAP was a very serious bidder with significant Australian and international backing across the proposed transaction
- Tony Shepherd, Long-Term Asset Partners
Before GrainCorp confirmed on December 3 that a bid proposal had been floated, LTAP had assembled a team of expert Tier 1 finance, legal, grain industry and debt rating experts to assess the grain business from outside, flagging its interest with the company's board in November.
The team had also obtained a financing package enabling it to provide an unusually high degree of execution certainty before conducting any confidential due diligence, including fully negotiated financing commitment letters from Goldman Sachs and Westbourne Capital.
Who's who at LTAP
The LTAP outfit was formed specifically to make the GrainCorp bid by banker, Chris Craddock, and ex-Aurizon rail freight boss, Lance Hockridge, with prominent infrastructure sector chief, Tony Shepherd as its chairman, and former GrainCorp ports and logistics head and Archer Daniels Midland ports director, Nigel Hart, part of the executive team.
Mr Craddock had reportedly been working on the bid strategy for several years.
"LTAP was a very serious bidder with significant Australian and international backing across the proposed transaction," said LTAP chairman, Mr Shepherd.
"Had due diligence supported our operational assumptions, we are confident we would have turned the LTAP proposal into a binding offer as contemplated."
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LTAP boasted formal engagement with a ratings agency that provided an indicative A-category rating for the proposed long-term capital structure.
It said it had also obtained commitment letters and term sheets from an internationally recognised insurer to provide LTAP with a swap linked to grain volumes intended to create predictable and stable earnings in the domestic grains business.
Rumours of the crop insurance styled grain swap strategy being deployed by LTAP prompted GrainCorp to also confirm it, too, had been working on a similar plan to smooth out income risks in the volatile grain market, where seasonal fluctuations often played havoc with maintaining earnings predictions for shareholders.
Portfolio review
For the past eight months GrainCorp has also been reviewing its own business portfolio to evaluate capital management and "portfolio optimisation" strategies.
Since the LTAP bid plans were made public, GrainCorp has moved to free up some of its fixed assets, selling its Australian bulk liquid terminal business for $350 million and flagging plans to spin off its profitable malt division, responsible for most of the company's profits last financial year.
A separate listing of MaltCo on the Australian Securities Exchange is expected to give GrainCorp shareholders an equivalent stake in the new business by the end of this year.
Meanwhile, the company's grains marketing and handling business will be merged with its oilseed processing operations to simplify the overall business and shave operating costs by about $15m a year.
In a note to the ASX acknowledging LTAP's withdrawal, GrainCorp said it had "engaged extensively with LTAP" to assist the potential bidders as they undertook due diligence and sought to develop an offer capable of consideration and response by its board of directors.
LTAP's Mr Shepherd has wished GrainCorp well, saying the business provided "a valuable service to the nation's grain growers".
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Andrew Marshall
Andrew Marshall is the group agribusiness writer for ACM's state agricultural weeklies and websites. He is a former editor at The Land and has worked in various Rural Press group roles in Canberra, North Richmond (NSW) and Toowoomba (Qld).
Andrew Marshall is the group agribusiness writer for ACM's state agricultural weeklies and websites. He is a former editor at The Land and has worked in various Rural Press group roles in Canberra, North Richmond (NSW) and Toowoomba (Qld).
