"Since that time period malt has grown into a sizeable portion of the company. And it really made sense for us to try to find a way that we could free malt up,and also find a way to allow the grains and oils businesses to still have a way to deal with the volatility,"Mr Palmquist said.
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On the latter point,Graincorp said it was evaluating the use of a so-called"grain production derivative instrument"to reduce cash flow volatility caused by variable harvest volumes.
Under this arrangement,New Graincorp would receive a payment when east coast production was below an agreed threshold. It would also pay an annual fixed fee,as well as payments to the derivative counter-party in years when production was above an agreed threshold.
The market welcomed the move,sending Graincorp shares up 2.2 per cent to $9.50 as the number of shares traded surged to 4.65 million for the day.
Graincorp,which has a market capitalisation of about $2.2 billion,hopes to have the demerger completed by the end of 2019 pending shareholder,court and other approvals.
Graincorp predicts the demerger will accelerate cost savings to the new grains business of about $20 million a year.
The announcement comes four months after LTAP said it had made a $10.42 per share non-binding offer for Graincorp that valued it at about $2.4 billion.
On top of the LTAP offer,Graincorp chairman Graham Bradley recently said the agribusiness had been approached by a"number of parties"who had expressed"serious interest"in buying part of the agribusiness.
In a note to clients,Bell Potter analyst Jonathan Snape said the key in the demerger was"how the market will value the residual Graincorp business with a potentially reduced volatility profile,the extent to which has yet to be articulated,nor the cost of achieving this."
Asked to respond to the Graincorp move,a spokesman for LTAP said it was continuing due diligence on Graincorp"to see if there's a deal to be done".
Graincorp insisted on Thursday that proceeding with a demerger did not prevent the company from looking at other options,including a sale of Graincorp as a whole,of MaltCo,or other parts of the business.
Graincorp said while it had engaged extensively with LTAP,it had"received no recent definitive update from LTAP".
Graincorp has also been streamlining its business,recently announcing a $350 million sale of its bulk liquids terminals business to ANZ Terminals.
Brett Hosking,a Victorian farmer and chairman of the group GrainGrowers,said the proposed division seemed"natural"given the areas of operation.
"Maybe their thought process is that by separating the two they think they increase the value of the whole. I suspect that's what they're trying to do,and maybe create some opportunities for growth in either side of the business,"he said.