Australian Break-Up Simplifies Takeover Opportunity, Enters MP
Following a complete company takeover offer and a suggestion from a "friendly activist" to break-up the Grains and Malts businesses, Graincorp Ltd's (GNC AU) strategic review concluded with the Spinoff of its malts business into United Malt Group Ltd (UMG AU), to separate next week (April 2, 2020). We believe this Spinoff simplifies any attempt to have the independent entities acquired by larger players in their space and provides the management control over the value in that potential takeover.What's Happening?
Graincorp Ltd (GNC AU) entertained an entire-company takeover offer of $1.7bn in late 2018 from Long-Term Asset Partners (LTAP), while also receiving a presentation from John Wylie and his “friendly activist†fund Tanarra Capital urging the company to consider the separation of its Grains and Malts businesses. Wylie argued the Malts business was severely undervalued and treated like a commodity play due to its pairing with the Grains operations.
GNC countered both offers with a strategic review, concluded in April 2019 with the Spinoff of the Malts business. A segment sale or IPO was considered, but GNC preferred to retain control of the separation process, so the Spinoff was the settled way forward. It was also announced the leadership of GNC were to leave for the Spinoff entity, meaning Non-Executive Chairman Graham Bradley and Managing Director & CEO Mark Palmquist will lead the Spinoff and will be replaced at GNC by Peter Richards and Robert Spurway, respectively.
Rationale for the Spinoff...
Alongside the typical advantages that are inherent to most Spinoffs (like increased freedom in capital allocation, shareholder exposure to separated businesses, and distinct managements), this break-up offers the distinct advantage of simplifying the process for an acquisition by peers in the grains or malt spaces. Given the takeover attention GNC had received prior to the conclusion of its strategic review and the subsequent decision to perform the Spinoff, we believe the management is looking to provide for a simpler acquisition process once the conglomeration is broken.
The Edge View...
We believe the next move for GNC (beyond its planned expansion) is to continue to field acquisition offers for the remaining Grains & Oils business. Current market speculation expects private equity players like BGH Capital, Carlyle or Kohlberg Kravis Roberts as potential acquirers, though they will have to contend with the same Australian regulatory issues faced by ADM in 2013, unless those rules have since been relaxed.
We believe the Spinoff is the best way for UMG's management to control the value of a potential takeover play, as the business was perceived as severely undervalued when paired with GNC’s commodity-based operations. Once Spun off, UMG will be able to target its growth areas and demonstrate its value as a leading global malt producer.
GrainCorp is a food ingredients and agribusiness company. Co. focuses its activities on three main grains (wheat, barley and canola). Co.'s reporting segments are: Storage and Logistics, which include grain receivals, transport, testing, storage of grains and other bulk commodities; Marketing, which markets grain and agricultural products and operates grain pools; Malt, which produces malt products, provides brewing inputs and other malting services, sells farm inputs, and exports malt; and Oils, which includes the processing and crushing of oilseeds. Co. also has a 60.0% joint venture interest in Allied Mills Australia Pty Ltd, a supplier of milled edible flour for human consumption.
The Edge Group - Global Fundamental Catalyst Investing. The Edge provides investors with access to hidden corporate value from Global Special Situations using a pioneering approach to investments. Founded in 2005 by fund management and investment banking professionals to provide high quality, private equity-level research on Global Corporate Divestitures for the benefit of fundamental event-driven, growth and value-oriented investors in this difficult to track, but proven investment space.
The Edge will look to screen and analyze include Spinoffs; Reverse Morris Trusts; Squeeze Outs; Privatizations; Demutualization; Deep Discounted; Rights Issues; Rights Offering; Restructuring; Insider Purchases / Buying Change of Management / CEO Change; Deteriorating fundamentals; Post-Bankruptcy; Reorganization; Tender Offer; M&A Deals; Secondary Offering; Share Swap; Thrift Conversions; Share Buybacks; Activist; Mergers. All analyzed from a fundamental point of view.
Unfortunately, this report is not available for the investor type or country you selected.
Browse all ResearchPool reportsReport is subscription only.
Thank you, your report is ready.
Thank you, your report is ready.