GrainCorp Ltd., eastern Australia’s largest grain handler, agreed to buy Gardner Smith Group and Integro Foods for about A$472 million ($489 million) in shares and debt to expand its edible oils unit.
Gardner Smith holders will get between A$110 million and A$121 million of GrainCorp shares priced at A$9.79 each, Sydney-based GrainCorp said today in a statement. The balance will be funded by debt and about A$159 million from selling new stock to existing shareholders.
Buying Gardner Smith, Australia’s second-largest oilseed crusher, and Integro gives GrainCorp 13 bulk liquid terminals and plants from Australia to China. The acquisitions add to deals in agriculture this year including Glencore International Plc’s C$6.1 billion ($6.2 billion) takeover of Viterra Inc. as companies seek to meet global food demand.
Edible oils “is a relatively stable sector with relatively good demand,” said Tom Bourne, an analyst at Melbourne-based Lonsec Ltd. with a “hold” rating for GrainCorp. “They are paying a full price for the assets so integration will be the key in delivering value for shareholders.”
The purchase price represents a transaction multiple of 7.4 times earnings before interest, tax, depreciation and amortization of A$64 million excluding cost savings, GrainCorp said. The company is targeting A$4 million a year of savings before tax after the first 12 months.
The acquisitions make “us a stronger company by giving us an end-to-end vertically integrated position right across the supply chain,” Managing Director Alison Watkins said today on a media call. It will also reduce earnings volatility, she said.
Goodman Fielder Ltd., Australia’s biggest baker, will sell Integro Foods for A$170 million with the proceeds used to reduce its debt, Sydney-based Goodman said in a separate statement. Greenhill Caliburn was the financial adviser to the breadmaker. GrainCorp will supply products including margarine and bottled oils to Goodman Fielder equivalent to about 40 percent of Integro’s total annual volume, GrainCorp said in a presentation.
Gardner Smith and Integro, Australia and New Zealand’s largest refiner and packager of edible fats and oils, will be combined under one entity called GrainCorp Oils, Watkins said. The company expects the transaction to be completed in October.
GrainCorp last traded at A$9.85 yesterday before the shares were halted. The stock will resume trading on Aug. 31. The company also said today underlying full-year net income will be at the upper end of its estimate of A$185 million to A$205 million.