SYDNEY (Reuters) – Australian takeover target GrainCorp Ltd said on Thursday it plans to separate in two, spinning off and listing its global malting unit and restructuring its grain business, whose earnings have been hit by drought.

At the same time, GrainCorp said it is still engaging with suitors vying for parts or all of the company, including little known asset manager Long-Term Asset Partners (LTAP), which last year made a A$2.38 billion ($1.69 billion) takeover offer.

The split would let the two companies pursue “independent operating strategies and capital structures, and allow them to attract investors with different investment priorities,” GrainCorp Chief Executive Mark Palmquist said in a statement

Shares in Australia’s biggest listed bulk grain handler rose as much as 5.3 percent in early trade before closing up 2.1 percent at A$9.50 in a slightly weaker overall market.

That was still below LTAP’s A$10.42 per share offer last year, which came amid a drought that has wilted crops across Australia’s east coast and slashed earnings from international grain trading.

GrainCorp said it expected the move to unlock significant value. James Ferrier of stockbroker Wilsons said in a note to clients it was “unclear whether the demerger plans increases or decreases takeover prospects.”

The spun-off company, dubbed MaltCo, contributed more than half of GrainCorp’s earnings last year. It would be the world’s fourth-largest independent maltster with malting houses in the United States, Canada, Australia and Britain, serving the specialty malt, whisky and craft beer markets.

The new GrainCorp, would focus on grains and edible oils production after the demerger, winning annual cost savings of about A$20 million a year.

To help reduce cash flow volatility related to harvest volumes, it would also look at using derivative instruments to protect earnings. GrainCorp did not disclose the cost, or how much earnings upside the company would potentially forgo.

The MaltCo businesses grew earnings before interest, tax, depreciation and amortisation (EBITDA) by 6 percent to A$170 million last year, while EBITDA at the new GrainCorp’s grain and oils business more than halved to A$101 million.

INTERESTED SUITORS

“GrainCorp was always an M&A stock – everybody was waiting for some kind of acquisition play to eventuate, even if most agri stocks are trading at a discount,” said Nathan Bell, a portfolio manager at InvestSmart.

GrainCorp said it continued to engage with parties who had expressed interest in its business, including LTAP, but it had not received a “definitive” update from the group.

“There remains potential for GrainCorp, MaltCo or other portfolio businesses to be sold,” the company said.

Last month it sold its bulk liquid terminals business for A$350 million.

GrainCorp said its chief executive Palmquist would resign once the demerger is complete in late 2019 and become CEO of MaltCo.

A spokesman for LTAP said it was still conducting due diligence, but declined to comment on the demerger announcement.

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