GrainCorp’smalt business is believed to be once again facing...

GrainCorp’smalt business is believed to be once again facing close scrutiny from privateequity, with BGH Capital, The Carlyle Group and Kohlberg Kravis Roberts allsaid to have been casting their eyes over the operation.

Thedevelopment comes as GrainCorp prepares to lodge its demerger booklet for itsmalt operations next month, ahead of a vote by GrainCorp shareholders on March16 for a demerger of the business.

GrainCorpis moving forward quickly with its demerger, and any party attempting to buythe business before that time would have had to put forward a highly compellingoffer to convince the board to part with the asset, partly due to the taximplications from selling off part of the business.

Allthree buyout funds are understood to have been very active in the Australianmarket of late, with all said to have been in the mix to buy the Australianglass bottle manufacturing operations of Owens Illinois, and most major buyoutfunds, including KKR, lining up for Laureate Education.

Thelatest moves come after parties late last year were said to have shown aninterest in the malt business, with one suitor thought to have been in negotiationsfor an acquisition.

Theunderstanding is that GrainCorp has always been eager to secure a price ofabout $2bn for the malt business, but potential buyers have not been preparedto pay that much.

Despitethis, it is possible a bidder could come forward and launch a takeover bid forthe malt division once it has been demerged from GrainCorp.

Butthen shares in the malt business will likely rerate, which could put the assetout of reach for a buyout fund.

GrainCorp,on the other hand, will likely face steep falls in its share price once themalt division is hived off as it grapples with the impact of the drought andthe recent bushfires.

Anyopportunistic buyer would no doubt prefer to buy the business before it isdemerged, with the hope of securing the operation at a cheaper price.

Privateequity firms Champ and Castle Harlan owned the malt business when it was namedUnited Malt Holdings.

GrainCorpacquired the concern in 2009 for $757m.

Anotherchallenge for private equity would be growing earnings for the malt business,given that analysts consider GrainCorp has done a good job in running thedivision.

Thebusiness is cyclical, and if it ramps up production and too much malt entersthe market, it could cause prices to fall.

GrainCorpis among the four largest malt businesses in the world.

Theothers are Cargill, Malteurop and France’s Boortmalt, backed by Temasek out ofSingapore.

Maltcontributed $176m in earnings before interest, tax, depreciation andamortisation to GrainCorp’s overall result for the 2019 financial year.

Thecompany moved to separate its malt business and sell off other assets after itwas subject to a takeover bid by Long Term Asset Partners for $2.4bn.