During their general meeting Monday in Sydney, participating shareholders in GrainCorp voted over 99 per cent in favour of resolutions which will see the company’s malt business become a standalone ASX-listed company, named United Malt Group Ltd.

Pending court approval of the “demerger,” which is expected at a hearing Friday in Australia’s Federal Court, United Malt will become “the world’s fourth largest independent commercial maltster,” GrainCorp said.

If court approval is granted as expected, shares in United Malt (ASX:UMG) would begin trading March 24 on a deferred settlement basis, then on a normal settlement basis starting April 2.

United Malt’s holdings are to include malting houses in the U.S., Canada, Australia and the U.K., as well as Country Malt Group, the company’s North American craft malt distribution business.

GrainCorp chairman Graham Bradley, speaking to the meeting Monday, said the United Malt business holds “strong market shares in these countries in the growing craft brewing and Scotch whisky sectors.”

United Malt’s Canadian assets are under the purview of Calgary-based Canada Malting, which produces about 400,000 tonnes of malt per year.

Canada Malting’s business includes malting plants at Calgary, Montreal and Thunder Bay, nine country elevators across the three Prairie provinces, and the Country Malt facilities at Delta, B.C., Didsbury, Alta. and Brampton, Ont.

Canada Malting’s history dates back to 1902, when it formed in the merger of three Ontario malting companies. GrainCorp bought the business in its 2009 takeover of the Canadian firm’s then-parent.

GrainCorp first announced its demerger proposal in April last year. Bradley reiterated Monday the deal “has the potential to unlock significant value for shareholders.”

GrainCorp’s board believes the “full value” of the malt business “has not been fully recognized by investors in recent years as it has formed part of a broader group whose business is affected by the variability of weather and crop cycles” along Australia’s east coast, he said.

Eligible GrainCorp shareholders will get one United Malt Group share for each GrainCorp share they hold as of March 25 this year. They’ll also retain their GrainCorp shares and can then opt to keep or sell either or both, the company said.

GrainCorp itself will also hang onto a 10 per cent stake in United Malt Group, Bradley said, “not as a strategic investment but as a valuable liquid non-core asset to provide GrainCorp with additional balance sheet resources and financing flexibility.”

‘Ongoing investment’

GrainCorp said last April its post-demerger focus will be on” building and developing its global grain and oilseeds origination network, including through ongoing investment in the GrainsConnect Canada supply chain and growth into new markets in the Black Sea and Indian subcontinent.”

Calgary-based grain handler GrainsConnect Canada — a joint venture between GrainCorp and Japan’s Zen-Noh Grain — today operates four Prairie inland grain terminals, two each in Saskatchewan and Alberta.

In a separate joint venture, GrainsConnect and Winnipeg grain firm Parrish and Heimbecker are building Fraser Grain Terminal, a Vancouver export facility expected to handle up to four million tonnes of grains, oilseeds, pulses and other commodities per year. Construction is expected to be complete in December this year.

GrainCorp last spring said its plan calls for GrainsConnect to “expand (its) origination footprint in Canada and enable (a) multi-origin service offering to customers in Asia and MENA,” referring to the Middle East and North Africa.

The post-demerger GrainCorp “will be initially structured with low core debt,” thanks mainly to the recent sale of its Australian Bulk Liquid Terminals business, Bradley said Monday.

GrainCorp’s earnings and cash flow, he said, will still be “variable from year-to-year based on weather and crop cycles.”

But the company this year also set up a new 10-year crop production contract, which for a “modest annual premium” will provide payment of up to A$80 million in “very poor crop years.” — Glacier FarmMedia Network

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GrainCorp stock dropped 11 per cent at the open of trade on Tuesday to hit close to where it stood preceding the bid, before recouping some of those losses to trade at $8.18 (all figures A$). The broader market opened half a percentage point higher.

The little-known asset manager had made an offer of $10.42 per share in December 2018, as drought wilted crops across Australia’s east coast and limited GrainCorp’s ability to earn revenue from international grain trading.

“Had due diligence supported our operational assumptions, we are confident we would have turned the LTAP proposal into a binding offer as contemplated,” LTAP chairman Tony Shepherd said in a separate release late Monday.

Investor attention will now turn to the current growing season, which is predicted to be poor, said Belinda Moore, an analyst at Brisbane stockbroker Morgans.

“LTAP’s withdrawal raises concerns about the due diligence process and GNC’s outlook,” she wrote in a note to clients.

“Before LTAP’s proposal, GNC’s share price was $7.30. Since this time, its outlook has deteriorated further and the company now looks likely to report a loss in FY20.”

Lack of information on the offer had held back GrainCorp from recommending the deal to its shareholders in December.

GrainCorp is in the process of splitting the company into two businesses — with plans to spin off and list its global malting unit — and restructuring its grain business.

GrainCorp’s Canadian assets include Canada Malting, which would join the planned malting spinoff, dubbed MaltCo.

GrainCorp is also a joint venture stakeholder in Calgary-based Prairie grain handler GrainsConnect Canada, with Japan’s Zen-Noh Grain.

GrainsConnect, in turn, is also a j.v. partner in Fraser Grain Terminal, a new Vancouver port facility, with Winnipeg grain firm Parrish and Heimbecker.

Last month, Sydney-based GrainCorp had said it was engaging with suitors vying for parts or all of the company, including LTAP.

The Australian government had blocked a $2.8 billion takeover of GrainCorp by U.S. agribusiness giant ADM in 2013 following pressure from grain growers.

— Reporting for Reuters by Tom Westbrook in Sydney and Aditya Soni in Bangalore. Includes files from Glacier FarmMedia Network staff.

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Sydney-based GrainCorp announced Thursday it plans to “demerge” its global malting business from its grains and edible oils business, forming two separate ASX-listed companies: MaltCo and “New GrainCorp.”

GrainCorp shareholders would get MaltCo shares proportionate to their stakes in GrainCorp if the company completes the demerger as expected by the end of calendar 2019.

GrainCorp said it expects annual savings of about $10 million by integrating New GrainCorp’s grains and edible oils businesses, cutting out duplication of costs and corporate functions, plus $10 million in “business simplification initiatives” coming out of the separation of MaltCo (all figures A$).

MaltCo, the company said, would be the world’s fourth largest independent maltster, operating malting houses in the U.S., Canada, Australia and the U.K., as well as Country Malt Group, the company’s North American craft malt distribution business.

MaltCo, GrainCorp said, would have the benefit of “high-quality, low-operating-cost processing assets strategically located in premium barley-growing regions.”

In Canada, those assets are under the purview of Calgary-based Canada Malting, which produces about 400,000 tonnes of malt per year.

The Canadian assets include malting plants at Calgary, Montreal and Thunder Bay, nine country elevators across the three Prairie provinces, and the Country Malt facilities at Delta, B.C., Didsbury, Alta. and Brampton, Ont.

Canada Malting’s history dates back to 1902, when it formed in the merger of three Ontario malting companies. GrainCorp in 2009 bought Canada Malting in a takeover of its then-parent, United Malt Holdings.

MaltCo, which in fiscal 2018 yielded EBITDA (earnings before interest, taxes, depreciation and amortization) of $170 million, is to focus on “further developing its international portfolio.”

Specialty malt, whisky and craft beer markets “are experiencing substantial growth,” GrainCorp said Thursday, and MaltCo will have “sufficient balance sheet flexibility to support the capital investment required to capture these growth opportunities.”

‘Ongoing investment’

New GrainCorp, after the demerger, would be an “integrated global agribusiness with grain handling, storage, trading and processing operations in Australia, New Zealand, North America, Asia, Europe and Ukraine, focused on grains, oilseeds, pulses, edible oils and feeds.”

GrainCorp said New GrainCorp’s strategic focus will be on” building and developing its global grain and oilseeds origination network, including through ongoing investment in the GrainsConnect Canada supply chain and growth into new markets in the Black Sea and Indian subcontinent.”

Calgary-based grain handler GrainsConnect Canada — a joint venture between GrainCorp and Japan’s Zen-Noh Grain — on Tuesday opened its third Prairie grain terminal at Vegreville, Alta. and plans to open a fourth at Huxley, Alta. this fall.

In a separate joint venture, GrainsConnect and Winnipeg grain firm Parrish and Heimbecker are building Fraser Grain Terminal, a Vancouver export terminal expected to handle up to four million tonnes of grains, oilseeds, pulses and other commodities per year following its completion, expected next year.

New GrainCorp’s plan calls for GrainsConnect to “expand (its) origination footprint n Canada and enable (a) multi-origin service offering to customers in Asia and MENA,” referring to the Middle East and North Africa.

“Our portfolio review made clear that these businesses have different characteristics and would benefit from operating separately,” GrainCorp CEO Mark Palmquist, who in the demerger would become MaltCo’s new CEO, said Thursday in a release.

“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.”

Klaus Pamminger, now general manager of GrainCorp’s grains group, would become CEO of New GrainCorp following the demerger.

While the MaltCo demerger progresses, GrainCorp said, it “continues to engage actively with parties who have expressed an interest in acquiring part or parts of the GrainCorp portfolio.”

Specifically, GrainCorp said it has “engaged extensively” with Long-Term Asset Partners (LTAP), a Sydney-based asset management firm, about a possible takeover, but as of Thursday “has received no recent definitive update from LTAP.”

LTAP was set up in 2016 to pursue “long-term, patient investing in Australian agricultural assets and infrastructure.” In November 2018, by which time it owned a 4.2 per cent stake in GrainCorp, it made a “non-binding indicative proposal” to the grain firm, valued at $2.38 billion. — Glacier FarmMedia Network

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The country’s largest listed bulk grain handler earlier on Dec. 3 received a buyout proposal from little-known asset manager LTAP in an all-cash deal for A$2.38 billion (C$2.303 billion), or $10.42 per share, a near-43 per cent premium to the stock’s previous closing price.

“LTAP proposal at this stage is not sufficiently certain or in a form which would allow the board to make a recommendation to shareholders,” GrainCorp chairman Graham Bradley said in a letter to shareholders.

“At this stage, there is no certainty that our engagement with LTAP will result in a binding proposal for GrainCorp, what the terms of any such proposal would be, or whether it would be recommended by the GrainCorp board,” the statement said.

GrainCorp, whose holdings in Canada include Canada Malting and a joint-venture stake in Prairie grain handler GrainsConnect Canada, also sought additional information from LTAP on its longer-term financing plan and intentions.

Shares in GrainCorp recorded their biggest one-day move in five years after the offer but were still well below the indicative offer price, reflecting uncertainty on whether a deal would go ahead.

The approach from LTAP comes as a drought wilts crops across Australia’s east coast, limiting GrainCorp’s ability to earn revenue from international grain trading.

GrainCorp said it expects to share the results of the ongoing review of its portfolio of assets with shareholders at or before the annual general meeting on Feb. 20.

— Reporting for Reuters by Aby Jose Koilparambil in Bangalore.

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GrainsConnect Canada announced plans Thursday to build a fourth Prairie high-throughput grain terminal on Canadian National (CN) Railway track at Huxley, Alta., about 75 km southeast of Red Deer.

The company — which expects to open its first terminal this fall at Maymont, Sask., about 45 km southeast of North Battleford — said the Huxley operation will include 35,000 tonnes of storage capacity and a rail car loop to load 134 cars in “under 14” hours.

Construction, pending “necessary approvals,” is expected to start “mid-year” for completion in 2019, the company said.

“We will have two sites in Saskatchewan and two in Alberta, offering choice and access to one of the most efficient supply chains to the West Coast,” GrainsConnect president Warren Stow said in a release.

“There has been strong grower interest in this area for more choice and we are excited to deliver a state of the site facility to the region.”

The nearest licensed primary grain elevator is Viterra’s 42,150-tonne capacity terminal on CN track at Trochu, about 12 km south of Huxley.

Other nearby elevators outside Red Deer include Louis Dreyfus’ site at Joffre and Richardson Pioneer’s at Olds, both also about 75 km away from Huxley.

GrainsConnect said its Huxley site will be the first in the region with a 134-car loop, “increasing efficiency and reliability to growers in the area.”

GrainsConnect’s other terminal sites are near Wilkie, Sask., about 55 km southwest of North Battleford, to open in mid-2018, and near Vegreville, Alta., to open in late 2018. — AGCanada.com Network

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The sale to the Swiss bank was valued at A$387 million (C$382 million), or A$8.53 (C$8.42) a share, ADM said.

ADM’s A$2.8 billion bid to buy Australia’s largest listed grain handler was blocked by government regulators in 2013 near the peak of a grain market boom.

Commodities prices have since tumbled and ADM and rival agribusinesses are focusing increasingly on higher-margin businesses such as natural food ingredients and specialty commodities to boost slumping returns.

“This transaction will allow us to further reduce our invested capital, and it will provide cash that we can redeploy to higher-return investments,” ADM CEO Juan Luciano said in a statement.

ADM had been shopping its GrainCorp stake this year, but was unable to find a buyer for the entire stake and canceled the sale process in July 2016, sources said.

GrainCorp’s Canadian grain handling and processing assets include Calgary-based malt processor Canada Malting, which GrainCorp acquired in 2009 when it took over United Malt Holdings.

GrainCorp late last year also announced a joint venture, GrainsConnect Canada, with Japan’s Zen-Noh Grain, to build a grain elevator network in Alberta and Saskatchewan.

ADM shares were up about 2.5 per cent on Thursday at US$44.31, up nearly 21 per cent since the beginning of 2016. GrainCorp shares drifted lower to A$8.71 in early trading on the Australian Stock Exchange on Friday, up less than one per cent on the year.

— Karl Plume reports on agriculture and agribusiness for Reuters from Chicago.

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The proposal is led by Australian Grains Champion, a Western Australian grower-led initiative. The acquisition would be valued at A$3 billion (C$2.96 billion), the Australian Financial Review reported.

GrainCorp said it will be a cornerstone investor.

“Our proposed investment is a good strategic fit for GrainCorp, bearing in mind CBH’s complementary assets and capabilities,” said Mark Palmquist, GrainCorp’s managing director and CEO.

“Importantly, the decision to proceed is ultimately one for Western Australian growers and we respect that process.”

As part of the proposal, the consortium said it would provide CBH grower members A$600 million (C$592 million) as an incentive should they agree to list CBH.

Australia is the world’s fourth-largest exporter, selling just shy of 19 million tonnes of the grain this season to markets in Asia.

Western Australia is the country’s largest grain-producing region, accounting for more than a third of all production.

In contrast, the east coast, where GrainCorp enjoys market dominance, has seen production of wheat stunted by adverse weather, limiting exports and slowing revenues.

GrainCorp said in November that financial year net profit fell 36.2 per cent to A$32.1 million.

— Reporting for Reuters by Ian Chua in Sydney.

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Tokyo-based Zen-Noh Grain Corp. (ZGC) and Sydney-based GrainCorp on Monday announced plans to build new grain origination sites in Alberta and Saskatchewan, through a 50/50 Canadian-incorporated joint venture to be based in Calgary.

GrainCorp said the companies are now “actively looking” at sites in both provinces for what will be “a fully integrated supply chain for the origination, marketing, storage, handling, distribution and exporting of Canadian grain and oilseed.”

The joint venture, dubbed GrainsConnect Canada, is budgeted for $120 million in its start-up phase, including construction and commissioning at its yet-to-be-chosen sites.

GrainCorp said it will put up $30 million from its own cash and debt facilities for that phase; Australian media report that ZGC will put up another $30 million. The joint venture will source the remaining $60 million from financial institutions, GrainCorp said.

Pending due diligence on potential sites and the customary regulatory and planning approvals, construction is to be staged “progressively” from the latter half of fiscal 2016 through to the end of fiscal 2018, GrainCorp said.

GrainsConnect considers Alberta and Saskatchewan “attractive” for their “reliability and high quality of grain production,” but the joint venture would consider increasing its footprint as the business grows, a GrainCorp spokesman said.

“This is an exciting opportunity to partner with one of the world’s most respected agricultural organizations and deepen our relationships with our international customers by growing our grain origination capability,” GrainCorp CEO Mark Palmquist said in Monday’s release.

The joint venture, he said, “will leverage GrainCorp’s existing Canadian footprint, including our Calgary marketing office and (Canada Malting) operations, plus Zen-Noh Group’s significant experience and customer relationships in exporting agricultural commodities from North America to Japan and other Asian destinations.”

GrainCorp said its existing marketing office in Calgary “will support the joint venture to manage the origination process with Canadian grain growers.” The joint venture is also expected to make use of the “close grower relationships” developed by Canada Malting.

The new business “also benefits grain and oilseed growers in the Canadian Prairies, by providing an independent and alternative pathway to market,” Palmquist said.

Calgary-based Canada Malting is GrainCorp’s current bricks-and-mortar stake in Prairie grain handling and processing. GrainCorp acquired the 113-year-old business in 2009, when it took over United Malt Holdings.

With capacity to produce 450,000 tonnes of malt per year — which makes it the biggest malting company in the country — Canada Malting has malt plants at Calgary, Montreal and Thunder Bay, plus 10 Prairie barley elevators.

ZGC is also already a known player in Canadian grain marketing. Since 2012 it’s operated a joint venture, CZL Ltd., with U.S. agrifood co-op CHS Inc., sourcing Canadian, U.S. and Australian wheat and barley for the Japanese market. A GrainCorp spokesman said the CZL joint venture will not limit the catchment area for GrainsConnect.

ZGC CEO John Williams, in GrainCorp’s release Monday, described the new joint venture as “a good opportunity to grow our business in Canada with a trusted partner” and “to strengthen further our ability to supply our customers in Japan and Asia.”

“Anything that increases competition for our grain is always welcome news,” Jim Wickett, a Rosetown, Sask.-area grower and chair of the Western Canadian Wheat Growers, said Monday in a separate release.

The Wheat Growers, one of the grower groups that lobbied for the end of the Canadian Wheat Board’s single marketing desk for Prairie wheat and barley in 2012, said the GrainsConnect announcement marks “another positive result” from that deregulation.

“The construction of new elevators on the Prairies will allow farmers to move more grain off the farm at harvest time, and should strengthen grain bids,” the group said, and will put grain “that much closer to being in an export-ready position, whether that grain ultimately moves through Canadian or U.S. ports.”

However, the group added, “increasing rail capacity will be important to ensuring farmers see the full benefits of this new investment.”

Discussions are already underway on “rail and port access” for the joint venture, GrainCorp said Monday. — AGCanada.com Network

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Typically produced by small, local brewers, the popularity of craft beers has grown rapidly in recent years in the U.S. as drinkers seek new tastes, with sales estimated to have climbed more than a fifth in 2014.

GrainCorp on Tuesday said it would spend US$75 million to increase production capacity at its Great Western Malting facility in Pocatello, Idaho by 120,000 tonnes, to 220,000 tonnes.

The move comes a few days after Australia’s largest listed agribusiness said it was looking to diversify internationally, curbing the potential impact of the recently emerged El Nino weather event that could reduce wheat production in the company’s stronghold across Australia’s east coast.

“The craft sector in the United States has been growing consistently at 10-15 percent per annum over recent years,” said Mark Palmquist, GrainCorp’s managing director and CEO.

U.S. sales of craft beer in 2014 were worth nearly US$20 billion, according to U.S. industry body the Brewers Association, up more than 22 per cent from the previous year and accounting for nearly a fifth of all beer sold in the country.

That contrasts sharply with U.S. sales of traditional beer products, which have seen little growth in the last 12 months.

Producing craft beer usually consumes larger amounts of malting barley than traditional beers.

The Idaho expansion is expected to begin in the third quarter of 2015 and to finish by June 2017.

GrainCorp said it would fund the project via cash flow and debt facilities spread evenly over its 2016 and 2017 financial results.

Great Western Malting and its Canadian sister firm, Canada Malting, both became part of GrainCorp through the Australian company’s 2009 takeover of United Malt Holdings, now named GrainCorp Malt.

On top of its U.S. market share, Great Western Malting also supplies brewers, distillers and food processors in Canada, Asia and South America with malts. Its malt and brewing supplies warehouse and distribution system, the Country Malt Group, includes warehouse operations at Delta, B.C. and Didsbury, Alta.

“Building our capacity at Pocatello makes sense on a number of levels,” Graincorp Malt president Greg Friberg said in a company release.

“Idaho is one of the most reliable sources of quality malting barley in North America and Great Western Malting has developed very close relationships with Idaho malting barley growers over 30 years. Freight and utility costs are competitive and the plant is well located to key target markets.”

— Colin Packham is a commodities correspondent for Reuters in Sydney, Australia. Includes files from AGCanada.com Network staff.

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