Shares in eastern states grain giant, GrainCorp, jumped almost 27 per cent on Monday morning after the company confirmed a potential $2.4 billion takeover offer from an Australian investment syndicate.
A surge of trading activity saw GrainCorp’s share price break its drought weighted shackles of the past two months, hitting $9.24 by noon.
The non-binding indicative proposal from Long-Term Asset Partners involves an acquisition, via a scheme of arrangement, of all GrainCorp shares at a price of $10.42.
That’s almost a third more than the share price for Australia’s biggest listed agribusiness when trading closed at the end of last week at $7.30/share.
The grain trading processing and logistics company is still weighing up the proposal, launched in mid November, telling shareholders to do nothing at this stage.
Back in late 2013 the federal government blocked a $3b takeover move for GrainCorp by US-based Archer Daniels Midland (ADM) after deciding the bid was not in the national interest.
Newly-formed private equity group, LTAP, claims it does not intend to sell any of GrainCorp’s substantial Australian or overseas assets should its proposal be recommended by directors and ultimately supported by GrainCorp shareholders.
We will continue to add value to growers’ grain through grain marketing services and oilseed and malt processing for domestic and international consumers.Tony Shepherd, Long-term Asset Partners
Little is known about the business making the offer, but the LTAP group was established by proven business players Tony Shepherd AO, Lance Hockridge, Andrea Staines and Chris Craddock to make long-term investments.
The bidding group describes itself as an asset manager for a trust whose beneficiaries are Australian investors, with more than $7b in funds under management.
“Under our proposal, GrainCorp shareholders have the opportunity to receive an immediate cash payment at a significant premium and at a price which we believe represents a very attractive value for the company,” Mr Shepherd said.
“For growers, an acquisition by LTAP ensures ownership and control by an Australian-owned entity with a plan for the long-term development of GrainCorp’s assets and operations and, importantly, an optimistic view of future volume growth for Australian growers.
“We will continue to add value to growers’ grain through grain marketing services and oilseed and malt processing for domestic and international consumers.
“Our ultimate capital structure will be investment grade and will include an allowance for significant future capital expenditure to facilitate growth for all stakeholders.”
LTAP’s proposal values GrainCorp’s shares at a 42.7 per cent premium to their November 30 price and a 32.7pc premium on the six-month weighted average price to November 30 of $7.85.
LTAP also claims the offer implies earnings multiples well above those implied by the contentious ADM takeover bid in 2012-13.
GrainCorp’s board confirmed it would engage with LTAP in the context of the company’s current portfolio review to further assess the merits of the scheme of arrangement proposal, including the value offered compared to other value creation alternatives and strategies available to the grain business.
Directors had not, however, formed a view on whether the price offered under the LTAP proposal was at a level which they were prepared to recommend to shareholders in the context of a change of control.
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 businessGrainCorp
“Accordingly, the board recommends shareholders take no action in respect of the LTAP proposal and await further information from the board which will be provided as part of the ongoing portfolio review,” a company statement said.
“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.”
GrainCorp said because its own portfolio review was well progressed and the LTAP proposal was not sufficiently certain, it would not be in shareholders’ interests for GrainCorp to suspend or terminate the other initiatives under assessment.
The board noted the proposal was subject to a number of conditions and involves a complex financing structure with significant leverage comprising $3.2 billion in acquisition facilities from Goldman Sachs and $400 million from Westbourne Capital.
“LTAP is a new entity and this would be its initial investment,” GrainCorp said.
“There is no certainty that the proposal will result in a binding proposal for GrainCorp, what the terms of any such proposal would be, or whether it will be recommended by the GrainCorp board.
“In particular, the LTAP Proposal and the acquisition financing facilities are conditional on due diligence which will be provided once appropriate confidentiality and standstill arrangements have been put in place including customary protections for GrainCorp.
GrainCorp has appointed Macquarie Capital as financial adviser and Gilbert and Tobin as legal adviser.
LTAP’s Mr Shepherd has insisted his plans for GrainCorp’s assets are focused on increasing grain volumes over time.
“There are many aspects of our strategy for the company’s future, but increasing volumes is central,” he said.
“Keeping transport and handling costs as low as possible will be a major incentive to help farmers increase production.
“Increased production volumes are good for farmers and good for GrainCorp.”
LTAP said its offer implied earnings multiples averaged over four years at 10.7 times its earnings before interest, tax, depreciation and amortisation, compared with the 8.8 times multiples associated with the ADM offer five years ago, which was eventually supported by the GrainCorp board and endorsed by the independent expert at the time.
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