AGT Food and Ingredients buys the Saskatchewan company largely to get access to durum supplies
One of the world’s largest pulse processing firms is making its first foray into sourcing Canadian cereal crops.
AGT Food and Ingredients has agreed to buy West Central Road & Rail for $22 million.
The deal gives AGT five Saskatchewan producer car-loading facilities in Easton, Laporte, Lucky Lake, Beechy and Dinsmore.
Each facility has 3,000 tonnes of bin storage, which is enough to load 30 rail cars. The facilities have an inbound receiving and outbound shipping capacity of 540 tonnes per hour, which means those 30 cars can be loaded in less than eight hours.
The loading sites are highly segregated with 16, 100-tonne bins and seven, 200-tonne bins.
The five facilities combined ship 300,000 tonnes of durum, wheat, canola, pulses and flax a year.
Durum accounts for 75 percent of the sales program, which is why WCRR was so appealing to AGT.
President Murad Al-Katib said the grain sourced from the five producer car loading sites will initially be destined for export, with much of it heading to AGT’s lentil processing and pasta plants in Turkey.
“This durum wheat from Eston and from Kyle and from Beechy and from Lucky Lake is going to end up in packages and it’s going to go to 91 countries around the world,” he said.
However, the long-term objective is to build a pasta plant in Saskatchewan and feed it with the durum sourced at the producer car sites.
“We’re an origin processor,” said Al-Katib.
“Part of my original vision 13 years ago was (to build) value-added facilities in pulses and durum.”
AGT announced in October 2011 it would spend up to $50 million building a durum mill and pasta plant in Regina. Seven months later it postponed the project because of disappointing earnings.
Al-Katib said the project is still in play now that the company has access to some of the world’s best quality durum.
“Our ultimate plan is to do value-added processing of durum in Saskatchewan,” he said.
That will not take place this year because the company is focused on expanding its pulse ingredients business in Minot, North Dakota. However, something could happen in 2016-18, said Al-Katib.
He believes Canada’s recently signed free trade agreement with the European Union will create a significant tariff-free market for Saskatchewan pasta.
WCRR president Rob Lobdell said the company wasn’t actively seeking a buyer, but there is plenty of interest for grain industry assets under the open market for wheat and barley.
“There was certainly multiple suitors. That’s about as much as I can say,” he said.
Proceeds from the purchase will be distributed to the company’s 1,900 shareholders, who are primarily farmers. The list also includes local businesses, villages, towns and rural municipalities.
It is estimated that shareholders will receive $310 to $340 per share. There are 1,896 class A voting shares and 53,000 class C non-voting shares.
Most of those shares were purchased for $100 with the exception of the Dinsmore offering, which were bought for $120 a share.
“The shareholders should be extremely happy with how this shook out,” said Lobdell.
WCRR was formed in 1998 by a group of farmers worried about the extensive rail and grain elevator consolidation taking place.
Farmers were miffed that grain from some of Saskatchewan’s most fertile land was having to be hauled hundreds of kilometres to inland terminals located on railway main lines.
So the group built its first producer car location in 2001 and created a successful business moving grain as an agent of the Canadian Wheat Board.
Everything changed when the board lost its monopoly over wheat and barley exports in 2012. WCRR had to add a marketing component to the business and go head-to-head against the major companies in the industry.
“While we have done well at it long term, it could prove to be an increasing challenge when you look at the size and scope of ourselves relative to some of the other players,” said Lobdell.
It was one of the main reasons behind the decision to sell the business to AGT, which he figures is an ideal partner for the shareholders and affected communities.
“For starters, they’re a Saskatchewan based company. They have a track record of success and they’re really into the value-added part of the business,” he said.
AGT is keeping the firm’s 15 employees and intends to continue using the loading sites to provide area farmers with local marketing and delivery options.
Lobdell said the assets are well suited to AGT’s business because they allow for a high degree of segregation for a firm that does a lot of niche marketing.
Al-Katib said AGT’s processing plants around the world are using more grain than the company has at its disposal, so this was a way to secure more supply.
WCRR’s loading sites are serviced by Big Sky Rail, which will shuttle rail cars back and forth to Saskatoon, where they can connect to Canadian National Railway’s main line.
“This is bulk handling for our supply chain. That’s what this is,” said Al-Katib.
“This is a little bit different than just being a grain handler. This is going to go into our system.”
The agreement requires the approval of 66 percent of WCRR voting shares at a meeting scheduled for the end of May.
“I would assume that it would have great appeal and should pass with relative ease,” said Lobdell.