Australia: GrainCorp to spin off malt business

GrainCorp today announced to spin off its malting business (MaltCo) in a separate company and list it on the Australian Securities Exchange (ASX). GrainCorp’s Grains and Oils businesses will be combined into an integrated grains and edible oils business and form New GrainCorp.

The proposed demerger will enable both businesses “to pursue independent operating strategies, with discrete capital structures, and attract investors with different priorities,” the company said in a press statement. New GrainCorp is evaluating options to reduce cash flow volatility, including consideration of a long-term grain production derivative instrument.

GrainCorp Chairman, Graham Bradley, said: “The Board believes that the demerger would unlock significant value for shareholders by establishing two unique and high quality ASX-listed agribusinesses with focussed management teams able to pursue independent strategies and growth opportunities.”

In parallel with progressing a demerger of MaltCo, GrainCorp continues to engage actively with parties who have expressed an interest in acquiring part or parts of the GrainCorp portfolio. GrainCorp has also engaged extensively with Long-Term Asset Partners (, 4.12.2018), however GrainCorp has received no recent definitive update from LTAP.

It is not clear, if the intended demerger will facilitate or hinder a take-over. Most likely, the move is intended to attract investors for part of the business but to lure it away from the other one.

Once the demerger is complete in late 2019, Mark Palmquist will resign with GrainCorp and become CEO of MaltCo.

GrainCorp CEO, Mark Palmquist, said: “Our Portfolio Review made clear that these businesses have different characteristics and would benefit from operating separately. A demerger would provide both MaltCo and New GrainCorp with increased flexibility to implement independent operating strategies and capital structures and allow them to attract investors with different investment priorities.”

“Following the proposed demerger, MaltCo will be the world’s fourth largest independent maltster with malting houses in the United States, Canada, Australia, and the United Kingdom. MaltCo also operates Country Malt Group, a leading craft malt distribution business in North America. MaltCo benefits from high quality, low operating cost processing assets strategically located in premium barley growing regions.

These assets have benefited from significant historical investment and are expected to require stay in business capital expenditure of $15-20 million per annum. In FY18, MaltCo generated EBITDA of $170 million.

MaltCo’s strategic focus will be on further developing its international portfolio, including by building on the growth of the recently expanded 220,000 metric tonne Pocatello malting plant in Idaho, United States, and the current 79,000 metric tonne expansion of capacity in Inverness and Arbroath, Scotland. The specialty malt, whisky and craft beer markets which MaltCo services are experiencing substantial growth and MaltCo will be established with sufficient balance sheet flexibility to support the capital investment required to capture these growth opportunities. MaltCo will target maintaining a strong investment grade capital structure, with a policy of maintaining a ratio of net debt to EBITDA of no more than 2.0 - 2.5 times. It is expected that MaltCo will also target a dividend payout ratio of between 60% -80% of underlying NPAT, delivering attractive returns to MaltCo shareholders.

Although the creation of MaltCo as a separate, listed company will involve some incremental corporate costs, it is expected that these will be more than offset by cost reduction initiatives to be implemented in MaltCo in the first year after demerger,” GrainCorp said in the statement.

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