GrainCorp Limited (ASX: GNC) is an ASX listed consumer staples company based in Sydney, Australia. The company is primarily in the agricultural business and provide services like freight services on Australia’s east coast, handing and storage of grains with main focus on three agricultural grains - wheat, barley and canola.
On 6th May 2019, the company had announced that Long-Term Asset Partners Pty Ltd (LTAP) is unable to go forward with its non-binding, indicative proposal, under which it agreed to acquire 100% stake in GrainCorp for cash consideration of $10.42 per share.
This proposal was announced on 3rd December 2019 by the company and since then GrainCorp has helped LTAP to undertake due diligence and sought to develop a binding offer capable of consideration and response by its Board of Directors.
Simultaneously it has also continued to advance in its portfolio review to evaluate capital management and portfolio optimisation strategies, which resulted in initiatives like;
- The agreement to sell the Australian Bulk Liquid Terminals to ANZ Terminals.
- Investment in the Fraser Grain Terminal in Vancouver, Canada.
- Initiatives to increase through-the-cycle EBITDA in its Grains business.
- The proposed demerger of its Malt business.
- The proposed combination of the Grains and Oils businesses and associated simplification and cost reduction benefits.
Long-Term Asset Partners decision to drop the agreement has been taken after a period of due diligence. Before the initial proposal on 3rd December 2018, LTAP had gathered a team of expert Tier 1 finance, legal, grain industry and debt rating experts to assess GrainCorp from outside.
It had also received a financing commitment for the deal which enabled LTAP to execute the deal with an unusually high degree of certainty before conducting any confidential due diligence. Fully negotiated financing commitment letters were also received from Westbourne Capital and Goldman Sachs.
LTAP had also engaged in formal communication with a rating company that issued an indicative A-category rating for the planned long-term capital structure. An internationally recognised insurer had also given commitment letters and term sheets to provide the company with a swap linked to grain volumes for the sole purpose of creating foreseeable and steady earnings in the local Grains business.
Post the due initial diligence, LTAP has acquired approximately 4.2% stake in the company.
Tony Shepherd, chairman of LTAP, said they were serious about the bidding with substantial Australian and international support for the proposed transaction. Had due diligence been a supportive factor for the operational expectations, LTAP would have gone ahead with the proposal and issued a binding offer.
Technical Outlook: The market capitalisation of the company is A$2.06 billion. The 52-week high and low of the stock is A$9.96 and A$7.17 respectively. After making an intraday low of A$7.71, the stock is trading at A$8.160 (AEST: 1:57 PM), down by 6.849% as of 7th May 2019. In the twelve months the stock has delivered a return of 6.8%, and the YTD return stands at negative 2.99%.
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