GrainCorp

Mar 28, 2023

Share A major shareholder has suggested European suitor Malteries Soufflet might need to increase a near $2 billion takeover bid to win control of United Malt. United Malt confirmed it had received a $5-a-share cash offer from Malteries Soufflet, part of Soufflet Group, and backed by European agricultural investor InVivo and KKR. The deal was first reported in Street Talk. United Malt was expected to emerge as a bigger company with more consistent earnings than GrainCorp, but demerged right when COVID restrictions came in. The United Malt board also revealed on Tuesday it had previously rejected three earlier confidential offers from Malteries Soufflet since mid-December, pitched at $4.15, $4.50 and $4.90. The fourth bid represents a 45.3 per cent premium to the last closing price of United Malt shares before it went into a trading halt on Monday, and would be higher than the stock has traded since it was spun out of GrainCorp in March 2020. The share price jumped more than 31 per cent to $4.52 when it emerged from the trading halt. The United Malt board granted the world’s second-largest maltster exclusivity based on its non-binding and indicative bid. Advertisement Vidhur Rangaswamy, who as portfolio manager for Tanarra Capital’s long-term value fund speaks for about 10.8 per cent of United Malt stock, said he was underwhelmed by the $5 a share offer amid speculation another bidder could emerge. “The bid’s in the ballpark, but we would have loved to have seen United Malt improve its operating performance before the takeover offer,” he said. “There’s serious strategic value in its assets. The replacement cost of those assets is probably higher than the bid price. “It’s a highly sought after network. Look at their US craft and Scottish distilling positions, they are market-leading, and it’s just about impossible for someone to replicate.” United Malt chairman Graham Bradley said talks with Malteries Soufflet started about 15 months ago, initially around a merger but then evolving into a takeover offer the board thought might be attractive to shareholders. Mr Bradley said Malteries Soufflet was not the only major maltster to approach United Malt in the 15-month period. Advertisement “I think it’s true to say we’ve had numerous discussions with numerous parties,” he said. “We’ve been an attractive opportunity for anyone significant in the business.” Malteries Soufflet has a “hard” exclusivity period of four weeks and beyond that United Malt can consider any other proposals that emerge. ‘Attractive alternative’ Mr Bradley conceded that United Malt had never achieved its full potential after being spun out of GrainCorp in March 2020 just as the COVID-19 pandemic hit. At the time of the demerger, United Malt was expected to emerge as a bigger company with more consistent earnings than GrainCorp. “I think we’ve had the very unfortunate coincidences of demerging right when COVID hit the world, which adversely affected our first couple of years,” he said. “We weathered that storm and then faced the Canadian drought and rising energy costs, and all the dislocations of 2022. Advertisement “But for those factors, I think we’d be in a very different position today. However, our job as directors is to ensure that we provide an optimal outcome for shareholders. The current offer is one that offers an attractive alternative to our shareholders rather than waiting for us to fully hit our straps.” Mr Bradley said United Malt was just starting to get some clear air after renegotiating supply contracts with brewers and on the back of improved barley harvests in North America and energy costs falling to lower than forecast in recent months. In a note to clients, Morgans analyst Belinda Moore said the timing of the offer was clearly opportunistic given United Malt “is just at the start of what is likely to be a multi-year turnaround story”. She also noted the takeover offer came just before United Malt was about to announce the appointment of a new chief executive to replace Mark Palmquist, who like Mr Bradley jumped ship from GrainCorp at the time of the demerger. Mr Palmquist will stay on for the time being, with the Malteries Soufflet takeover unlikely to be completed until late in calendar 2023 if it proceeds. Mr Bradley said there was an emerging shortage of global capacity in malting with companies reluctant to invest in increasingly high-cost new plants. He said this supported the value of the United Malt network and its capacity to maintain strong margins over a number of years. Brad Thompson writes across business and politics from Western Australia for The Australian Financial Review. Brad is based in our Perth bureau. Connect with Brad on Twitter . Email Brad at brad.thompson@afr.com Save