Agricultural and integrated grain business Graincorp Ltd (ASX: GNC) has released an investor presentation and announced they have, “commenced execution of a number of operational and value creation strategies”.
How Graincorp Is Unlocking Value
Graincorp has previously announced strategies to unlock value, including the sale of their Australian Bulk Liquid Terminals for an enterprise value of $350 million, which was announced on 4 March.
They’re also in discussion with a group called Long-Term Asset Partners, who have submitted an indicative, non-binding proposal to acquire Graincorp at $10.42 per share.
Today’s big announcement is that they will demerge their global malting business and list the new company on the ASX. The spin-off will create Maltco, a global malting and craft brewing distribution business, with the remaining GrainCorp to focus on domestic and international grain handling, storage, trading and processing.
They are targeting the ASX listing of MaltCo by the end of 2019. Management believe separation enables and accelerates simplification and cost reduction across both companies with a target of $20 million per annum.
They also believe this new structure provides “increased potential for shareholders to obtain control premia from an acquirer given ongoing interest in the GrainCorp portfolio”.
Buy, Hold or Sell
I think this is a good move by Graincorp and will unlock value for shareholders.
However, for me, having lived in the bush I’ve seen the ups and downs in the agricultural sector, so its generally not a sector that I like to invest in. The cyclical nature of the industry often means you need to get your timing right.
Last month, seed and crop protection business Nufarm Limited (ASX: NUF) announced a half year loss and suspended their dividend after operations were hit hard by drought across large parts of Eastern Australia and dry conditions in Europe.
On the flip side, activity in the sector has been heating up lately with agribusiness company Ruralco Holdings Ltd (ASX: RHL) receiving a takeover bid from Canadian fertilizer heavyweight Nutrien who offered $4.40 per share for Ruralco, a 44% premium to the share price prior to the bid.
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At the time of writing, David does not have a financial interest in any of the companies mentioned.
