Grains marketer and malt producer GrainCorp has acquired two food oils businesses for $472 million and will combine them to form GrainCorp Oils.
GrainCorp said on Tuesday that it had agreed to acquire Goodman Fielder’s commercial oils business, Integro Foods, and the Gardner Smith Group, which is Australia’s second largest oilseed crusher and an operator of bulk liquid port terminals.
GrainCorp will pay $170 million for Integro.
Gardner Smith has an enterprise value of $302 million.
GrainCorp will seek to raise $159 million via the issue of about 18 million new shares in a one-for-11 entitlement offer, at $8.80 per new share, to help fund the acquisitions.
GrainCorp will also issue about $110 million to $121 million in scrip to Gardner Smith shareholders at $9.79 per share.
Under the Integro deal, Goodman Fielder will enter a long-term supply agreement with GrainCorp to supply about 40 per cent of its oils and finished goods.
GrainCorp chief executive Alison Watkins said the chance to combine Gardner Smith and Integro into a larger business was a clear and logical fit with GrainCorp’s business model.
She said the acquisitions were consistent with GrainCorp’s strategic focus on three grains: wheat, barley and canola.
“GrainCorp Oils will provide us with immediate scale in the edible oils sector in Australia and New Zealand,” she said.
“While both are very good businesses in their own right, it is the combination of the two into a cohesive whole that allows us to unlock additional value for GrainCorp’s shareholders, connects the grain growers who use our network more closely with edible oils customers, and creates a seamless and compelling offer for those customers.”
GrainCorp expects to reap about $4 million in annual savings and benefits as a result of the acquisitions.
GrainCorp Oils will be able to crush more than 300,000 tonnes of oilseeds annually and will have 280,000 tonnes of annual refining and packaging capacity. It will also have 13 bulk-liquid port terminals.
Goodman Fielder expects to book a pre-tax profit of about $25 million on the sale of Integro, which it will use to reduce debt.
The Integro sale comes after Canadian commodities firm Cargill withdrew from talks.
Goodman chief executive Chris Delaney said that while Integro was a well-performing business, it did not fit with the company’s new focus on its core retail brands.
Morningstar analyst Peter Rae said GrainCorp’s diversification into oils would reduce earnings volatility for the group and enable GrainCorp to capture more value from the grain chain.
He said GrainCorp appeared to have paid a full price for Gardner Smith and a reasonable one for Integro.
“The stated synergies that they (GrainCorp) are going to get out of it (the acquisitions) of $4 million are not a lot, so it would be hoped that they can get more than that out of it,” Mr Rae said.
GrainCorp also confirmed on Tuesday that its full-year underlying net profit would come in around the upper end of its previous forecast of $185 million to $205 million.
Shares in Goodman Fielder were 0.75 cents higher at 54.25 cents at 1249 AEST.
GrainCorp’s shares were in a trading halt while the company carries out its entitlement offer, having last traded at $9.85.
