CSR to refine itself by offer of pure sugar play

Its building products, property and aluminium divisions, with a potential market capitalisation of about $1.4 billion, include its Viridian glass business, for which CSR paid $865 million in 2007, helping to blow out the group's debt to $1.2 billion.

CSR will hold meetings with shareholders and its Australian banking syndicate to shape the balance sheets of the demerged companies.

The banking syndicate will keep a close eye on CSR's lending covenants as the board - advised by Lazard and Goldman Sachs JBWere - creates stand-alone businesses that can cope with the volatility of sugar prices and a depressed housing market.

The demerger means Australia's largest sugar company, that gave parent company CSR its high-profile brand name, will finally be freed from an unwieldly conglomerate that has to compete for resources with CSR's Tomago aluminium smelter and a building division that makes insulation, roof tiles, fibre cement and glass.

CSR had been sitting on a demerger proposal since late last year but now believes global sharemarkets show signs of improvement and that investors are likely to be more receptive to risk.

Managing director Jerry Maycock said yesterday he hoped the spin-off of the sugar and renewable energy businesses could be completed by the end of CSR's financial year, next March 31.

"Improving market conditions, combined with the stronger performance and outlook for the sugar business, mean it is now an appropriate time to move forward with this proposal and address any issues associated with a demerger through formal due diligence," Mr Maycock said.

"We do believe that under normal market conditions this will be value accretive to shareholders."

Ron Brierley's Guinness Peat Group grabbed a stake in CSR in 2007 and now holds nearly 5 per cent of the company. Yesterday a spokesman for the corporate raider said the merger was a step in the right direction, but was a decision that should have been made long ago.

"Substantial shareholder value has been forgone by not taking advantage of restructuring opportunities before the company's dilutive capital raising late last year."

While building is still in the doldrums, sugar prices have rallied 37 per cent over the past 12 months thanks to a fall in Indian output, and Brazil choosing to divert its sugar into fuels.

CSR Sugar, which makes 40 per cent of the nation's raw sugar, recorded earnings before interest and tax (EBIT) of $83.7 million for 2007-08, up 17 per cent. It also has a growing renewable energy business: ethanol EBIT rose 22 per cent to $11 million.

Building products - the source of two recent profit downgrades - posted a 20 per cent slide in EBIT to $117.9 million. Aluminium earnings slipped 19 per cent to $110.7 million.

CSR major shareholder Australian Foundation Investment Co said yesterday: "On the surface the rationale behind the demerger makes sense, but we will have to wait to see more of the detail before we can fully assess the outcome for shareholders."