GrainCorp says takeover bid too low and unclear

GrainCorp says LTAP takeover bid too low and unclear – and debt issues worry farmers


Agribusiness
GrainCorp chairman, Graham Bradley, says a review of the company's business has stimulated a rich array of global interest, including from potential joint venture partners.

GrainCorp chairman, Graham Bradley, says a review of the company's business has stimulated a rich array of global interest, including from potential joint venture partners.

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GrainCorp says it still knows little about the LTAP bidding group except it is six months old with no history in agribusiness

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Farmers and GrainCorp customers worldwide are peppering the company with questions about the secretive $2.4 $billion Long-Term Asset Partners takeover bid and its big debt danger, but chairman Graham Bradley says there’s still little to report.

However, his board has decided the $10.42 a share proposal undervalues Australia’s biggest listed agribusiness.

“We intend communicating our views to shareholders,” he said.

While speculation about potential backers – including overseas funding – is buzzing, LTAP has stayed tight-lipped about its financial structure, despite winning the chance to study some of GrainCorp’s accounts.

There needs to be serious discussion about the valuation. The board views the offer as undervaluing the business - Graham Bradley, GrainCorp

Late last week the bidder began scrutinising the storage, handling, marketing and processing company’s grains business cost structures and overheads, yet gave no ground on disclosing financial structures behind its own operation, which plans a fully debt-funded privatisation of GrainCorp.   

Mr Bradley said LTAP was asked to disclose more detail about itself by December 31, but gave no commitment.

To date GrainCorp directors knew little about the bidding group except it was about six months old, “with no history in agribusiness, no experienced grains industry staff to speak of, and its plans are 100 per cent debt funded”.

“We need a much clearer understanding of their business and their proposal,” he said.

“It’s imperative we have detailed understanding of how it would all work.”

“There also needs to be serious discussion about the valuation of GrainCorp.

“The board views the offer as undervaluing the business.”

New business options aplenty

Meanwhile, GrainCorp’s review of its own business direction and asset portfolio, which may potentially see joint venture ownership of some of its infrastructure, had “stimulated a rich array of interest” from around the world, plus a range of potential strategies.

“We have a very full range of options to be weighed up,” said Mr Bradley, noting he could not specify who was showing interest, including if West Australian co-operative CBH, may be one of the parties.

“At the end of the day we want an optimal result for our shareholders, and we must bear in mind any potential impact on our network, not to mention our customers’ businesses.

“That may be even achieved by another offer – the LTAP bid could always be subject to a superior offer.”

What’s being frequently brought to our attention by growers are concerns about over-leverage of our services and future capacity to service debt - Graham Bradley

But GrainCorp’s shareholders and other stakeholders “don’t want uncertainty hanging over our heads for any longer than necessary”.

Concerns about debt and big interest repayment priorities for any revamped GrainCorp entity appeared to be weighing on farmers’ minds.

“What’s being frequently brought to our attention by growers are concerns about over-leverage of our services and future capacity to service debt,” Mr Bradley said.

Concerned feedback

“We’re not hearing a lot of confidence about what has been made public so far.

“We’ve had considerable feedback and a lot of questions from growers and other customers – what it means to them, what it means to GrainCorp, and what do we know?”

GrainCorp managing director Mark Palmquist, with chairman Graham Bradley.

GrainCorp managing director Mark Palmquist, with chairman Graham Bradley.

Meanwhile, given GrainCorp’s east coast infrastructure network had an important service role in farming communities, he believed government interest in the bid would again reflect the “national interest” factors considered during the unsuccessful 2013 Archer Daniels Midland takeover attempt.

He also noted LTAP’s assumptions on capital expenditure required to complete GrainCorp’s Project Regeneration infrastructure upgrades to improve supply chain efficiency suggested LTAP’s plans were little different to what the company was already doing.

“In fact, we feel the LTAP players are actually a bit behind in the ball game,” he said.

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GrainCorp had reviewed its Project Regeneration agenda since merging its storage and marketing businesses last year and believed there may be more cost effective ways to speed up the eastern Australian network’s activities, making better use of any capital expenditure.

In the interim, GrainCorp had not rushed to complete some of the upgrades originally planned as successive low yielding harvests meant they were largely “not needed right now”.

PSP interest rumoured

Meanwhile, speculation has emerged in the bush about the possible involvement of Canadian pension fund giant, PSP Investments as a backer for the bid to privatise GrainCorp.

Having this year amassed a 22,500 hectare suite of NSW cropping properties from Glencore, a $200 million grain farming, storage and transport business based at Temora in NSW and other irrigated and grazing assets in the past few years, PSP has swiftly become a major farm sector investor.

I am watching developments around GrainCorp with the view to making sure rural Australia and agriculture’s interests are heard in Parliament and cabinet - David Littleproud, Agriculture Minister

The fund which supports public service peinsions, including the Royal Canadian Mounted Police, has “natural resources” investments worth about $4b worldwide.

PSP responded to suggestions of an interest in GrainCorp saying it was policy not to comment on market rumours or speculation.

GrainCorp’s Mr Bradley said he had not had contact with PSP or heard of its interest.

Agriculture Minister David Littleproud was watching developments around GrainCorp with the view to “making sure rural Australia and agriculture’s interests are heard in Parliament and cabinet”.

“Although any offshore interest in the company would involve the Treasurer’s ultimate decision, the Nationals have fought and won on big foreign ownership issues before where its not in the national interest, including for GrainCorp,” he said.

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The story GrainCorp says takeover bid too low and unclear first appeared on Farm Online.

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