FOUNDING a new oils business in one fell swoop, GrainCorp yesterday paid $472 million to buy and combine Goodman Fielder's Integro Foods and the privately owned Gardner Smith, an oilseed crushing, storage and handling company.
Integro, which Goodman Fielder has had on the market since 2009, was bought for $170 million, minus the out-of-home and Asia-Pacific oils and fats businesses, on an earnings multiple of 5.5 times.
Gardner Smith, which had originally partnered GrainCorp to buy Integro, but wound up selling into yesterday's deal, was bought for $372 million, or 9.2 times earnings.
GrainCorp will fund the acquisition through a combination of existing borrowings, $110 million to $121 million in scrip (issued to Gardner Smith shareholders at $9.79 a share) and a 1-for-11 placement to raise $159 million from existing shareholders.
GrainCorp, which went into a trading halt yesterday before an overnight institutional book-build, gave fresh guidance that its 2011-12 earnings before interest, tax, depreciation and amortisation would be at the upper end of its $385 million to $415 million range.
The price paid for Integro was somewhat lower than expected.
Macquarie Securities analyst Greg Dring said Goodman Fielder was unlikely to get the $240 million it had expected from the sale of Integro plus the New Zealand milling business. He noted the Integro sale could dilute Goodman Fielder's earnings unless the company made a 21 per cent profit margin on its home ingredients made from fats, oils and finished goods it would now have to buy rather than source internally.
Mr Dring also noted speculation that Goodman's 10 per cent shareholder, Wilmar, ''was not in favour of the sale and might therefore abandon the stock''. Goodman shares closed unchanged at 53.5¢ after rallying initially.
GrainCorp managing director Alison Watkins said the acquisitions were a sensible diversification of earnings that would reduce dependence on the east coast crop cycle and add processing capacity to the last of the three grains the company was focused on: wheat, barley and canola. GrainCorp processes wheat through its Allied Mills joint venture with Cargill and barley through its malt division.
GrainCorp hopes to gain $4 million in synergies by merging Integro and Gardner Smith.
''GrainCorp supplies canola to Gardner Smith, Gardner Smith has long relationships with Goodman Fielder as a supplier of canola oil, and of course we know Goodman Fielder well through Allied Mills,'' Ms Watkins said.