Australia: Court gives Graincorp green light to spin malt business off in early April

GrainCorp's malt division will reclaim its former name to become United Malt when the business breaks away from the big east coast grain company in early April, the Queensland Country Life reported on February 6.

An independent expert's review by Grant Samuel and Associates has concluded the planned demerger of the international malt business was in the best interests of GrainCorp shareholders.

Shareholders will receive one United Malt share for each GrainCorp share they currently own when the new company is listed on the Australian Securities Exchange.

They will also retain their existing GrainCorp shares.

The slimmed-down parent will also retain a 10 per cent stake in United when the new US-based company is listed.

United Malt is the world's fourth largest malt processing business, and also a big supplier of brewing ingredients to the craft beer market in North America.

Prior to being absorbed by GrainCorp in 2009, United Malt Holdings was formed by private equity businesses, Champ and Castle Harlan, which pulled together 14 malt processing plants in Canada, the US, Britain and Australia.

UMH was subsequently acquired by GrainCorp for A$757 mln, almost doubling the size of the grain marketing and milling company in one swoop.

At the time, chairman, Don Taylor, said the deal was designed to strengthen the company's core business, reduce its exposure to seasonal volatility and substantially increase GrainCorp's earnings from grain processing.

The UMH acquisition did indeed prove to be a good earnings safety net for the 100-year-old grain company, especially when recent drought conditions dried up earnings from GrainCorp's traditional grain handling, storage and marketing divisions.

However, major shareholders have lately been uncomfortable with the lack of capital flexibility in GrainCorp's business model and keen to see their stake in the malt operation freed up to run its own race, unencumbered by the legacy business' fluctuating seasonal fortunes and its drain on cash flow.

"The board believes the demerger has the potential to unlock significant value for shareholders by creating two high quality, ASX-listed agribusinesses, each with management teams focussed on pursuing independent strategies and growth opportunities," said GrainCorp chairman, Graham Bradley.

Mr Bradley will move camps to become United Malt's new chairman, replaced at GrainCorp by fellow director, Peter Richards.

A special shareholder meeting to vote on the demerger scheme proposal has been scheduled for March 16 at 10am in Sydney.

All directors have flagged their intentions to vote, in favour of the plan to split GrainCorp in half.

Assuming the demerger gets shareholders' support, the arrangement, proposed by GrainCorp management last April, will see the new company trading as an independent entity by late March or early April.

The Federal Court of Australia and the Australian Securities and Investment Commission this week approved the dispatch of a scheme booklet outlining the proposal to shareholders by February 14.

GrainCorp chief executive officer, Mark Palmquist, and the proposed managing director of United Malt, was excited by the opportunity to pursue an independent growth strategy for the malt business.

He said United's prospects were underpinned by strong market fundamentals in craft brewing and Scotch whisky and a conservative capital structure.

Meanwhile, GrainCorp would continue to be a leading integrated Australian agribusiness, with diversified operations connecting growers to domestic and international consumers in more than 30 countries.

GrainCorp intended to maintain a conservative capital structure and investment discipline with minimal core debt.

Its minority ownership interest in United would provide some balance sheet resources and financing flexibility, in addition to the recently implemented crop production contract, which provides the company with income insurance guarantees in poor grain yield years.

Chairman-elect, Mr Richards, said the leading integrated agribusiness had a proud history and would remain well positioned to serve its customers and create value for shareholders after the demerger.

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