The GrainCorp Ltd (ASX: GNC) share price will be on watch this morning, following an update to the market on the planned demerger of GrainCorp's international malt business.
GrainCorp announced that the Federal Court of Australia has approved the dispatch of the Demerger Scheme Booklet in relation to the proposed demerger of GrainCorp's international malt business by way of a scheme of arrangement to GrainCorp's shareholders. The court has recommended that a meeting of GrainCorp shareholders be convened to consider and vote on the demerger.
Grant Samuel & Associates, the independent expert appointed by GrainCorp to review the proposed demerger, had concluded that the demerger is in the best interests of GrainCorp shareholders.
What will happen to the malt business following the demerger?
If the demerger is implemented, eligible GrainCorp Shareholders will receive one ordinary share in United Malt Group Limited for each ordinary share in GrainCorp UMG, which is currently a wholly-owned subsidiary of GrainCorp, and will become a standalone entity listed on the ASX and will hold the Malt Business.
After the Demerger, United Malt will continue to be the world's 4th largest independent commercial maltster, with malting houses in Canada, the United States, Australia and the United Kingdom in the growing craft brewing and Scotch whisky sectors. United Malt is also a leading craft malt distributor in North America.
Upon implementation of the demerger, United Malt's balance sheet is expected to support a strong, investment grade capital structure supported by a policy of maintaining a ratio of net debt to EBITDA of 2–2.5 times.
GrainCorp CEO Mark Palmquist said, "we are excited by the opportunity to pursue an independent growth strategy for the Malt Business, underpinned by strong market fundamentals in craft brewing and Scotch whisky and a conservative capital structure."
What about the GrainCorp business?
If the demerger is implemented, GrainCorp shareholders will retain their GrainCorp shares. Following the demerger, GrainCorp will continue to be an integrated Australian agribusiness, with diversified operations in over 30 countries. GrainCorp intends to maintain a conservative capital structure and investment discipline with minimal core debt. GrainCorp will retain a minority ownership interest of 10% in UMG.
GrainCorp Chairman, Graham Bradley commented, "[t]he GrainCorp Board believes that the demerger has the potential to unlock significant value for GrainCorp shareholders by creating two high quality, ASX-listed agribusiness companies, each with management teams focused on pursuing independent strategies and growth opportunities."
Timeline and shareholder vote
The GrainCorp shareholder vote is scheduled for Monday 16 March 2020, with the demerger to be completed in late March/early April 2020, subject to the satisfaction of certain conditions precedent, including GrainCorp shareholder, court and regulatory approvals.
