The GrainCorp Ltd (ASX: GNC) share price will be on watch on Tuesday after the integrated grain company released an update on the acquisition proposal it received from Long-Term Asset Partners.
What was in the update?
According to the release, GrainCorp has been informed by Long-Term Asset Partners (LTAP) that, following a period of due diligence, it is unable to proceed with its non-binding, indicative proposal to acquire the company for a cash consideration of $10.42 per share.
LTAP chairman, Tony Shepherd, explained that its due diligence didn't support its operational assumptions.
He said: "LTAP was a very serious bidder with significant Australian and international backing across the proposed transaction. Had due diligence supported our operational assumptions, we are confident we would have turned the LTAP proposal into a binding offer as contemplated. GrainCorp provides a valuable service to the nation's grain growers and we wish them well."
What now?
Whilst the breakdown in takeover talks could weigh heavily on Graincorp's shares, it is worth noting that the company has, in parallel, continued to progress its portfolio review to evaluate capital management and portfolio optimisation strategies.
Following this review the company announced plans to demerge its global malting business, subject to shareholder and other approvals.
Doing so will result in two independent ASX-listed companies and potentially unlock significant value for shareholders.
One company would be MaltCo, a global malting and craft brewing distribution business. It would be the world's fourth largest independent maltster with malting houses in the United States, Canada, Australia, and the United Kingdom. It also operates Country Malt Group, a leading craft malt distribution business in North America.
The other company would be New GrainCorp, a domestic and international grain handling, storage, trading and processing business focused on grains, oilseeds, pulses, edible oils and feeds.
GrainCorp's chairman, Graham Bradley, advised that the board "believes that the demerger would unlock significant value for shareholders by establishing two unique and high quality ASX-listed agribusinesses with focussed management teams able to pursue independent strategies and growth opportunities."
Should you invest?
Whilst I'm not overly interested in New GrainCorp, I do think that MaltCo would be an interesting investment option should the demerger go ahead.
This could make it worth considering an investment if GrainCorp's shares are sold off today.
In addition to GrainCorp, I think fellow agricultural businesses Costa Group Holdings Ltd (ASX: CGC) and Rural Funds Group (ASX: RFF) would be worth considering.
