If they can find an antidote to United Grain Growers’ poison pill, the two prairie pools bidding to buy the 91-year-old grain company say they’re confident their takeover bid will succeed.
Alberta Wheat Pool and Manitoba Pool Elevators last week offered to buy all of UGG’s common voting shares at $13.75 per share.
The pools would merge UGG’s assets into their own provincial operations and set up a new co-operative grain company in Saskatchewan. They said the takeover would make both their companies more competitive in a deregulated environment, increase efficiencies, make the two pools more profitable and boost returns to members.
Read Also
Alberta eases water access for riparian restoration
Alberta government removes requirement for temporary diversion licence to water plants up to 100 cubic metres per day for smaller riparian restoration projects
However, the proposed buyout may be choked off by a so-called poison pill put in place by UGG’s board of directors to thwart hostile takeover bids.
It would give all shareholders other than the pools the opportunity to buy large volumes of UGG stock at a drastically reduced price, reducing the pool’s ownership stake to an insignificant holding.
Geoff Southwood, chief financial officer of Alberta Wheat Pool and the man directing the bid, said if that provision kicks in March 4, as threatened by UGG, it would almost certainly doom the attempted buyout.
Shares worth less
“The value of the shares we already hold would become significantly less and at that point we would most probably be forced to abandon our takeover attempt,” he said.
The pools say they have not triggered the poison pill and have appealed to shareholders and UGG directors to recognize the provision will seriously damage UGG.
If UGG can be persuaded, whether by lawyers, securities commissions or force of argument, to waive the poison pill and UGG’s shareholders are allowed to respond directly to the pool’s purchase offer, Southwood believes the takeover bid will succeed.
“We’re very optimistic that we will acquire a very high percentage of the shares,” he said. “We’re highly confident we will exceed 75 percent.”
Reaching 75 percent would allow the pools to take full control of UGG’s operations under the Canada Business Corporations Act. It would also allow the pools to change the governance of UGG to gain control of the board of directors.
The pools believe that farmers own a minority of UGG’s roughly 12.5 million common voting shares.
They are confident their offer to buy stock at $13.75 will gain support of the institutional and retail investors who hold the majority of the company’s shares.
“We think the institutional holders will tender and we think the majority of retail holders of shares will tender because it is a very fair price,” said Southwood. “We’ve done a lot of homework.”
The pools estimate 35-40 percent of the shares are owned by farmers, about 40 percent by institutional investors and the balance by retail investment dealers.
While the takeover could succeed without the active participation of farmer shareholders, Southwood said the pools will try to convince producers it’s in their best interests to sell, both for the financial return and for the benefits from creating a strong new Canadian-owned grain handling co-operative.
He said the pools will buy as many shares as are offered for sale, even if it isn’t enough to provide complete control of UGG.
“This is a long-term strategic decision for us,” he said.
When the pools announced Feb. 5 they had acquired 13 percent of UGG, they described it as a move designed to thwart a rumored takeover bid by an unnamed foreign-owned multinational grain company.
Pool officials say they initially hoped to use their stake to work with UGG management and directors to make changes in UGG to better serve the interests of western Canadian farmers. After a meeting between the pools and UGG proved unproductive, the pools decided to make a bolder move and on Feb. 12 and 13 increased their ownership stake to 14.98 percent.
