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GrainCorp To Sell Liquid Terminals Business For USD $248 Million

FreightWaves

GrainCorp, which is listed on the Australian Stock Exchange, is an agribusiness and bulk-ports operator. It has agreed to sell its Australian bulk liquid terminals business to independent bulk liquid storage company, ANZ Terminals, for about AUD$350 million (USD$248 million).

Eight terminals, with a combined storage capacity of about 211,000 cubic meters, will be sold. GrainCorp will also enter into a long-term storage agreement with ANZ Terminals for the storage of its various liquid products.

Nick Moen, ANZ Terminal's CEO, commented on the deal and argued that it represented a positive outcome.

"This acquisition expands our footprint across the Australian bulk liquid terminals market, including key sites in Queensland and Victoria and opens up new geographies for us in Western Australia and Tasmania. It also diversifies our customer base and the range of commodities we store, with [the] terminals providing significant storage in edibles and tallow... [it also] enables ANZ Terminals to capitalise on growth opportunities to build our position further," he said in a statement.

ANZ Terminals noted that the acquired tanks can store edible oils, fats, chemicals, petroleum and there is a "specialist capability" in flammable and combustible liquids.

"As such they are a strong complement to ANZ Terminals' current business which provides bulk liquid storage at four major ports in Australia for companies importing or exporting bulk liquid chemicals, fuels, petroleum products, vegetable oils and liquefied gasses," the company said.

ANZ Terminals already operates 427,000 cubic meters of storage at seven terminals in Australia and four terminals in New Zealand. It offers storage and handling for chemicals, petroleum, vegetable and edible oils, base oils and bitumen. It also provides ship loading and discharge services.

GrainCorp's Bulk Liquids Business is doing quite well. In GrainCorp's financial year 2018 results, delivered February 20, the liquid terminals business generated revenues of AUD$969 million, an increase of 2.4 percent on the previous year. Earnings before interest, taxation and depreciation were up 5.2 percent, from AUD$50 million in FY2017 to AUD$61 million in FY2018.

GrainCorp reported high utilization driven by "consistent customer demand." In its 2019 outlook, the company forecast "continued stead demand" and "high capacity utilization of bulk liquid terminals."

The Bulk Liquids Terminals business was acquired in 2012 when GrainCorp bought oilseed crusher Gardner Smith for about AU$302 million (USD$222 million). In today's money that's about AUD$339 million (USD $243 million)**. GrainCorp also simultaneously bought Integro, a packager of edible fats and oils.

At the time, GrainCorp said the rationale for the acquisition was that "the combination of the two into a cohesive whole... allows us to unlock additional value for GrainCorp's shareholders... and creates a seamless and compelling offer for those customers."

The idea was to generate scale for GrainCorp in the edible oils sector as the business was crushing 300,000 tons of oilseed each year and had 280,000 tons of edible fats and oils refining and packaging capacity. Its 13 bulk liquid terminals handled up to one million cubic meters of bulk liquids each year. GrainCorp was then looking for synergies of AUD$4 million a year along with a platform for growth.

However, jump forward to today, and GrainCorp clearly decided in its ongoing portfolio review, that disposal was the preferred option. CEO and Managing Director, Mark Palmquist, said, "Since we acquired the assets in 2012, the Australian Bulk Liquid Terminals business mix has evolved substantially and is increasingly serving other sectors, in addition to the edible oils commodities that are more closely aligned with GrainCorp's core business."

The terminals that will be sold are located around Australia and are as follows:

Port Kembla (New South Wales) features 10 tanks with a total capacity of 12,750 cubic meters , carbon-steel tanks and a berth with a 16.25 metre draught. It can berth vessels up 260 meters in length.

Pinkenba (Queensland) is located on the Brisbane River. There are 32 tanks of 66,311 cubic meters storage and the facility includes carbon steel, stainless steel, heated and insulated tanks. Products handled include fats, oil, combustible liquids and corrosive liquids. The berth can take vessels of 186 meters length and it has a draft of 10.5 meters .

Largs Bay (South Australia) is located on the Port Adelaide River. There are 21 tanks at the facility with a total capacity of 12,000 cubic meters. There are carbon steel and heated tanks present. Products handled included corrosive liquids, combustible liquids, fats and oils. The berth has a draught of 10 meters and can take vessels up to 200 meters long.

Devonport (Tasmania) is located on the mouth of the Mersey River and it has 14 tanks with a total capacity of 8,388 cubic meters. There are carbon steel and heated tanks. There are two berths, which offer a 10-metre draught and can take vessels up to 200 meters in length.

Coode Island (Victoria) is located in the Port of Melbourne on the Yarra River, near Fisherman's Bend. This is a major facility with 72 tanks with a total capacity of 44,451 cubic meters featuring carbon steel, stainless steel, heated and insulated tanks. The facility handles fats, oils, combustible liquids and corrosive liquids. The berth is slightly smaller than the others at 180 meters long and a slightly more shallow draught of 9.4 meters.

North Laverton (Victoria) is an inland facility for road tanker loading and unloading. It is located west of Melbourne and has 30 tanks with a total capacity of 3,565 cubic meters. It features carbon steel, stainless steel, heated and insulated tanks. It handles fats, oils, combustible and corrosive liquids.

Finally, North Fremantle (Western Australia) is located in the city and port of the same name. There are 17,727 cubic meters of tanks, which includes both carbon steel and heated tanks. It handles fats, oil, combustible liquids and corrosive liquids. The berth offer 11 meters of draught and can take vessels of up to 200 meters in length.

GrainCorp also has tank storage and liquid handling facilities in New Zealand at Tauranga, New Plymouth, Napier, Timaru and Bluff but these are, for now, being retained by GrainCorp.

The sale of the bulk liquids business is conditional on receiving regulatory approval and GrainCorp not entering into a change of control or material alternative transaction before 10 May 2019". That last point is particularly significant as GrainCorp is a takeover target.

Investment fund Long-Term Asset Partners (LTAP) made an unsolicited non-binding indicative bid for GrainCorp of AU$10.42 a share in cash at the beginning of December 2018. LTAP was set up in 2016 to invest in Australian agriculture and, in early December, revealed it already had a 4.2 percent share in GrainCorp. The proposal values GrainCorp at a 32.7 percent premium to the six-month, volume-weighted average share price of GrainCorp up to the end of November 2018.

GrainCorp's share price immediately jumped from AU$7.30 to AU$9.16 a share on the news. At the time of writing it has a market capitalisation of AU$2.2 billion.  The GrainCorp Board revealed that there is a "complex financing structure" involving $3.2 billion in acquisition facilities from Goldman Sachs and AU$400 million from Westbourne Capital. The GrainCorp board has neither endorsed nor condemned the proposal, instead stating that it is seeking further information from the potential acquirer.

** NOTE: AUD$339 million at mid-market rates at the time of writing is, in fact, USD$240 million and is not USD$243 million. However, the former figure is incorrect as an inflation-updated amount because it would be affected by the value of the foreign exchange rate at the point-in-time of the calculation. The figure of USD$243 million is correct as it has been calculated by converting August 2012's AUD$302 million into USD$222 million at that point in time. The USD$222 million figure was then updated from August 2012 to today's money by taking into account the effect of inflation.

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