December 3, 2018

Australia’s largest listed crop handler GrainCorp has received an unsolicited cash takeover offer of A$2.38 billion ( US$1.8 billion) from Long Term Asset Partners Pty (LTAP).

Newly formed LTAP is backed by Goldman Sachs Group, and has been launched as an asset manager for a trust benefiting Australian investors. It is headed by former president of the Business Council of Australia, Tony Shepherd, and by former CEO of rail freight company Aurizon Holdings Ltd., Lance Hockridge, along with directors Andrea Stains and Chris Craddock, and forner ADM executive director and GrainCorp general manager of ports, Nigel Hart.

As the name hints, LTAP was structured to make long-term investments, and if the takeover proves successful, it does not intend to divest any GrainCorp assets. The offer indicates an all-cash approach of A$10.42 per share, or a 43 percent premium to GrainCorp’s closing price on Friday, resulting in the  company’s stock recording its largest single-day jump of 27 percent.

The deal is complex, however, including acquisition facilities totaling A$3.2 billion from Goldman Sachs Group and another A$400 million being forwarded by Westbourne Capital –  leading GrainCorp’s Board to express in a statement the need for further review of LTAP’s backers and its long-term financing plans and intentions, noting in a company statement, “…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.”

In a move to lessen further disquiet, LTAP has stressed its Australian credentials; a move which speaks to ADM’s failed $2.55 billion takeover of GrainCorp in 2013, which was denied by the Australian government on the grounds that it did not meet national interest requirements.

“Given that the transition towards more robust competition continues and a more competitive network is still emerging, I consider that now is not the right time for a 100 percent foreign acquisition of this key Australian business,” said Treasurer Joe Hockey at the time.

Times now are different however. Drought has caused cuts to the volumes of grain being delivered to and handled by the company, and may also result in a drop in year-end profits, according to Bloomberg Intelligence.

“The timing of the offer is opportunistic,” Belinda Moore, equity analyst with RBS Morgans, told Reuters.  “With the next opportunity for GrainCorp to possibly benefit from materially improved conditions not until 2021, shareholders will likely see this offer as attractive.”

GrainCorp assures that it will consider the offer, undertaking a period of conditional due diligence to answer various questions regarding LTAP’s backers, the financial structure of the deal, and its adherence to Australian regulatory requirements as it conducts an ongoing Portfolio Review.

~ Lynda Kiernan