Oct. 6 (Bloomberg) -- GrainCorp Ltd. of Australia agreed to buy United Malt Holdings Ltd. for $655 million, doubling in size by adding the world’s fourth-largest manufacturer of malt used to make beer and whisky.

The deal will be funded by selling A$589 million ($517 million) in new shares and $200 million in debt, Sydney-based GrainCorp, eastern Australia’s biggest grain handler, said today in a presentation. The shares will be sold at 20 percent less than their closing price yesterday.

Buying United Malt from buyout firms Castle Harlan Inc. and CHAMP Private Equity will give GrainCorp customers such as brewer Foster’s Group Ltd. along with operations in the U.S., the U.K. and Canada. It will also reduce GrainCorp’s reliance on seasonal cropping conditions in Australia.

“The deal would give GrainCorp more international diversification where currently it’s very exposed to the east coast weather,” said Hugh Dive, who helps manage about $3 billion at Investors Mutual Ltd. in Sydney, including GrainCorp stock. “We’re likely to see more consolidation in the agricultural sector.”

GrainCorp, halted from trading pending the stock sale at A$5.65 each, fell 3.5 percent to A$7.092 when last traded yesterday, giving it a market value of A$681 million. The share sale is underwritten by Credit Suisse (Australia) Ltd.

GrainCorp has risen 45 percent this year, outpacing the S&P/ASX 200 Index’s 23 percent gain through to yesterday.

Expansion Plans

United Malt operates 14 malt houses and currently produces about 1 million metric tons of malt a year, GrainCorp said. That will rise to 1.2 million tons, the company said. It has more than 800 customers in the brewing and distilling sector.

“For a number of years GrainCorp has been examining ways of making company earnings more robust and less susceptible to seasonal variation,” Chairman Don Taylor said in a separate statement. “UMH achieves this goal by increasing and diversifying GrainCorp’s future earnings.”

GrainCorp operates seven bulk grain export terminals in eastern Australia and has grain storage capacity of as much as 20 million tons. It trades more than 3 million tons of grain a year and is Australia’s largest producer of flour through its partnership in Allied Mills.

Beer, Whisky

After the acquisition, GrainCorp will get 43 percent of earnings from malt and 23 percent from grain storage and handling, according to a slides presentation today.

It will allow GrainCorp to tap demand from brewers and distillers for malt, with beer demand growing at an annualized rate of 4 percent from 2001 to 2008 and whisky demand up 2.1 percent in the same period. Beer making accounts for 95 percent of malt use, the company said.

United Malt is made up of four companies including Great Western Malting in the U.S., Canada Malting in Canada, Barrett Burston Malting in Australia and Bairds Malt in the U.K., CHAMP said in the statement sent by e-mail.

“We do business with most of the largest distillers and brewers in the world,” United Malt Chief Executive Officer Jim Anderson said today on a conference call. He will stay on after the deal’s completion.

CHAMP and Castle Harlan acquired Great Western Malting, Canada Malting, Barrett Burston Malting and a 60 percent stake in Bairds Malting in September 2006 to create United Malt, according to CHAMP’s Web site. The businesses were bought from ConAgra Foods Inc. in the U.S. and South Africa’s Tiger Brands Ltd., it said.

Profit Increase

Separately, GrainCorp said profit would be between A$60 million and A$63 million in the year ended Sept. 30. That’s higher than the previous forecast of A$53 million to A$63 million, it said.

GrainCorp is paying $655 million for United Malt, converted at an assumed exchange rate of 86.5 cents, which values the deal at A$757 million, the company said.

White & Case LLP was legal counsel for Castle Harlan, CHAMP Private Equity and United Malt Holdings. They were assisted by Mallesons Stephen Jaques in Australia, Nicholas Clarke, a spokesman for White and Case, said in an e-mailed statement.

Credit Suisse is GrainCorp’s adviser on the deal and Gilbert + Tobin is its legal adviser.

To contact the reporters on this story: Madelene Pearson in Melbourne on mpearson1@bloomberg.net; Shani Raja in Sydney at sraja4@bloomberg.net.

Last Updated: October 6, 2009 01:02 EDT