Ag Growth eyes new markets

Westeel purchase | Winnipeg company acquires major competitor and famous brand

An iconic brand in the grain storage business, Westeel, is changing hands.

Ag Growth International has an agreement to buy Westeel from Vicwest Inc. for $221.5 million in cash. They are both Winnipeg companies.

“Westeel provides a complementary product offering to expand our growth platform within North America and around the world,” said Ag Growth president Gary Anderson.

Ag Growth is a leading manufacturer of augers, belt conveyors, storage bins, grain handling accessories and grain aeration and drying equipment.

Its brands include Batco Manufacturing conveyors, Hi Roller conveyors, Westfield Industries augers, Tramco bulk handling equipment and Twister grain bins.

The company has a long history of mergers and acquisitions, dating back to its formation in 1996.

The addition of Westeel would boost annual revenues by 44 percent to $580 million for the 12 months that ended Sept. 30.

Marc Robinson, an analyst with Cormark Securities, said the takeover had been circulating in the rumour mill for years.

“It has been talked about for as long as I’ve followed the company, so I’m just curious — why now?” he said during the question and answer session of Ag Growth’s conference call with investment analysts.

“The reality is that it was available now. It really wasn’t at other times,” said Anderson.

“We had to go our own way for a while but never quit our desire to dance with the prettiest girl in the room. We just had to wait around and wait for the right time.”

Anderson said the deal improves Ag Growth’s geographic balance.

“AGI is much larger in the U.S. and Westeel is much stronger in Canada,” he said.

Before the acquisition, 53 percent of Ag Growth’s sales were in the United States, 21 percent in Canada and 26 percent internationally.

Forty percent of Ag Growth’s revenue will be in the U.S., 38 percent in Canada and 22 percent internationally if Vicwest’s shareholders and government regulators approve the agreement.

Anderson said the takeover gives Ag Growth the scale to compete in the global arena.

Westeel’s focus on Europe, the Middle East and North Africa complements Ag Growth’s presence in Eastern Europe, Latin America, Southeast Asia and Australia.

The acquisition also brings balance to the product lineup. Ag Growth sells a lot of grain handling equipment, while Westeel’s focus is on storage.

Ag Growth already sells grain storage products, but Westeel brings additions to the catalogue, including smooth-wall bins, hopper cones and commercial hopper bottom bins.

Vicwest’s board of directors and officers, who control 15.6 percent of the company’s outstanding shares, have agreed to vote in favour of the deal. However, it must now be approved by at least two-thirds of shareholders.

The Ag Growth-Vicwest acquisition is part of a wider deal where all the shares of Vicwest are sold to Irish insulation maker Kingspan Group plc and there is a simultaneous transfer of the Westeel business and assets to Ag Growth.

Kingspan will retain what was Vicwest’s building products division.

“The board of directors of Vicwest concluded that operating a construction business and agricultural business under one umbrella is no longer the ideal structure for the long-term,” Vicwest president Colin Osborne said in a news release.

“After very robust and competitive processes for both Westeel and Vicwest Building Products, we are confident that this transaction delivers the highest value for Vicwest shareholders.”

Greg Coleman, an analyst with National Bank Financial, wondered if government regulatory approval includes a review by Canada’s Competition Bureau.

He estimated that Westeel controls 60 percent of the Canadian marketplace for grain handling and storage products and Ag Growth another eight to 10 percent.

“Putting the two together, it could be sizeable in certain regions,” he said.

“I’m just wondering if there’s any questions or concerns about anti-competition there, having too much of the market under one roof.”

Anderson said he believes that won’t be an issue.

“It’s a very competitive environment. A lot of the U.S. players are participating in Canada,” he said.

Steve Sommerfeld, Ag Growth’s chief financial officer, said the company must file a pre-merger notification with government regulators.

“Farmers in Canada aren’t going to be disadvantaged from this transaction, and we feel very confident that we’ll get a favorable ruling from the regulators,” he said.

Anderson said the future is bright for the grain handling and storage business.

He credited the demise of CWB’s marketing monopoly, the trend by farmers to buy and store seed and fertilizer to mitigate price risks and the potential for increased corn acres in Western Canada as opportunities to increase sales in North America.

He also said storage practices in other parts of the world are far inferior to North American standards, which creates a huge infrastructure gap between ports and producers.

“This represents an enormous opportunity for AGI,” said Anderson.

The deal is expected to close during the first quarter of next year if the appropriate approvals are achieved.

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