GrainCorp split rekindles takeover talk, and other options

GrainCorp's malt split sparks takeover interest and fresh choices

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GrainCorp's malt business spin-off plans have stirred new interest in the company's activities from potential suitors and commercial partners.

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GrainCorp's planned spin-off of its malt business next month has stirred new interest in the company's operations from potential takeover suitors and commercial partners.

Chief executive officer, Mark Palmquist, said the future of both GrainCorp's traditional grain logistics and marketing business and the newly renamed United Malt division were "generating general interest from others, which may prompt new thinking and opportunities".

He also anticipated a volley of questions about the likely future direction and potential for both companies from shareholders at Sydney's February 19 annual general meeting.

Market speculation recently identified private equity players BGH Capital, The Carlyle Group and Kohlberg Kravis Roberts as scrutinising the takeover options for the malt business.

One potential suitor was thought to have begun last minute negotiations before GrainCorp shareholders vote on splitting the business in two.

One of the benefits of a demerger for the malt business, or GrainCorp, is that we could be more attractive for new relationships. - Mark Palmquist, GrainCorp

However, Mr Palmquist felt those media rumours were "just speculation".

"If it's happening, I'm not aware of anything specific," he said.

"Although, one of the benefits of a demerger for the malt business, or GrainCorp, is that we could be more attractive for new relationships.

"It could potentially be a merger or partnership or other business options.

Mark Palmquist

Mark Palmquist

"We will have a flexibility which gives both companies a chance to look at things differently."

In particular, the strongly performing malt business is expected to be free to explore new growth options and business friendships, given the demerger would give it full control of its own balance sheet and it would not be constrained by funding commitments to GrainCorp's capital-heavy storage and handling operations.

"We're getting interested input from across the industry, including malt companies,"Mr Palmquist said.

"They talking about what it's all going to look like once the demerger goes through.

"I use the term `interest' fairly loosely, but there's certainly inquiry about what we're thinking and doing."

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A special shareholder meeting to vote on the demerger proposal is set for March 16.

If, as expected, shareholders support the deal to list United Malt as an independent company on the Australian Securities Exchange, they receive one United share for each GrainCorp share they own and retain all their GrainCorp stock.

The parent company will also retain a 10 per cent stake in United Malt, the world's fourth largest malt processing business.

Mr Palmquist said an early priority for the newly listed malt company would be to give the investment market and shareholders clarity about what would define United Malt as a business and, before the new financial year, something of a road map for the future.

How will it work?

United was expected to have an initial staff of about 950 when it began trading independently in early April.

Extra skills and establishment costs were anticipated, including the cost of new registered head office accommodation in Sydney, probably in the same Liverpool Street building where GrainCorp is now based.

GrainCorps malt processing plant at Pinkemba, in Queensland.

GrainCorps malt processing plant at Pinkemba, in Queensland.

The malt company's corporate base will be in the US in Vancouver, Washington state, where United already has a significant back office operations, with directors' board meetings expected to be split between Australia and North America.

Mr Palmquist, who becomes managing director, would be based in Vancouver, but split his time between Australia and the northern hemisphere.

We think the demerger will be very good for farmers - GrainCorp will be able to clearly focus on its valuable relationship with producers - Mark Palmquist

The core GrainCorp business will emerge from the break up with almost 2000 Australian and offshore staff and could be downsizing further over time.

"There will probably be more capacity than they would like, but that's hard to be specific while the situation is so fluid at present," Mr Palmquist said.

Farmer briefings

GrainCorp management was running regular briefings with investors and customers discussions to keep them abreast of likely changes for the core grain business and the malt division.

"We need to be sure we are explaining it true to our customers," he said.

"We think the demerger will be very good for farmers - GrainCorp will be able to clearly focus on its valuable relationship with producers.

"Post-demerger (management) will definitely be looking at being out there reinforcing that relationship and discussing our business."

He said new GrainCorp managing director in waiting, Robert Spurway, who would join the company from dairy giant, Fonterra, would probably want to be on the ground meeting farmers and other customers as quickly as possible.

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