Farmer-owned terminals a target?

In a year of mega mergers and grain industry consolidation, it remains to be seen whether Western Canada’s independent farmer-owned grain terminals will emerge as the next takeover targets.

Wayne Hittel, chair of the Inland Terminals Association of Canada, said Canada’s new deregulated wheat market has prompted farmer-owned terminals to forge closer ties with big grain handling companies.

But it’s not yet clear whether multinationals or Canadian-based line companies will attempt to secure a larger equity stake in Western Canada’s community-owned facilities.

According to Hittel, corporate partnerships involving farmer-owned terminals can take many forms.

In some cases, line companies have an equity position in farmer-owned facilities.

In other cases, large companies like Viterra or Richardson will negotiate grain handling agreements with farmer-owned facilities.

“Just because you’re not partnered with one of the bigger companies doesn’t mean that you don’t have some kind of alliance with them,” Hittel said.

“Even if it’s not a joint venture, a lot of the time you’ll sign an agreement for delivering grain to their port terminal …. I’m going to say that probably all (independent terminals) have some type of agreement in place.”

Like Little Red Riding Hood, farmer-owned terminals are relatively small players in a big environment.

They are carrying a basket filled with goodies that every grain company wants — modern elevators, access to grain, and the trust and support of local growers.

So far, there has been little to suggest that independent terminals are in the crosshairs of large Canadian companies or multinationals.

But industry observers are watching. Last year, farmer shareholders at North East Terminal near Wadena, Sask., voted in favour of selling their terminal and other NET assets to Richardson International for roughly $25 million.

That sale arose after NET received an unsolicited offer in June 2010.

After reviewing the offer, NET board members sought competing bids, eventually securing a deal that was reported to have paid NET shareholders $700 to $750 per share on an original investment of $100.

Cargill, which had a 22 percent ownership stake in the company, said it would abide by the wishes of local shareholders.

At least three of ITAC’s 10 member terminals have joint ventures with large grain handling companies.

Viterra has an equity position in CMI at Naicam, Sask., and Gardiner Dam Terminal at Strongfield, Sask.

Cargill has an stake in the South West Terminal near Gull Lake, Sask.

Shawn Graham, Gardiner Dam Terminal Joint Venture general manager, said Glencore International’s proposed takeover of Viterra would make Glencore the terminal’s fifth corporate partner in 11 years.

“We’re getting good at building partnerships, or trying anyways…,” Graham said.

At Unity, Sask., North West Terminal is taking a different tack.

Shareholders there bought out their corporate partner Richardson in 2007 and are in the final stages of paying for that equity investment.

Jason Skinner, chief executive officer, said NWT will soon be a completely independent, shareholder-controlled company that owns country facilities, as well as a share in a West Coast export terminal.

“It’s always interesting to be standing on the outside watching, that’s for sure,” said Skinner when asked about consolidation in the grain industry.

Skinner said interest in prairie elevators has increased since the elimination of single-desk marketing.

“I think a lot of those companies are interested in this market and what opportunities it presents.”

Kevin Hursh, executive director of ITAC, said he is not aware of pending takeover deals involving ITAC terminals, but talks have likely taken place.

“As an association, we don’t really get involved in (those discussions) because that’s the business of individual members but I don’t think it’s much of a secret that there’s been lots of talk back and forth and lots of deals looking to be done,” Hursh said.

ITAC terminals handle about 2.5 million tonnes of grain, pulses and oilseeds a year and had assets with an replacement value of about $370 million in 2011. Hursh said the market value of those assets has jumped over the past few years.

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