A battle for control of Philom Bios Inc. could create casualties on prairie farms, says an agricultural economist.
The Saskatoon inoculant firm is the subject of a hostile takeover bid by MicroBio Rhizogen Corporation, or MBR.
MBR, which started in Saskatoon in 1987, says the market for inoculants is becoming increasingly competitive and globalized, and companies must become bigger to survive and prosper.
MBR is a subsidiary of Micro Bio Group Ltd. of Britain, which was bought by American company Becker Underwood last September.
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But economist Richard Gray of the University of Saskatchewan said prairie farmers should be hoping the takeover doesn’t succeed.
“It’s not in the interests of producers,” he said. “They could lose substantially.”
Gray said it’s not easy for new entrants to get established in the kind of high-tech research and manufacturing business that Philom Bios is engaged in.
He said a firm with a stranglehold on the market could price products higher and do less research, since it would face less pressure to be innovative and competitive.
Philom Bios has said that if the takeover goes through, MBR would control close to 75 percent of the inoculant business in Canada.
“To me, market concentration becomes an issue when you can count the firms on one hand,” Gray said.
“When one firm is well over half, then there are real issues.”
MBR officials could not be reached.
Industry needs competition
Philom Bios president John Cross has made a similar argument in fighting the takeover bid, saying mergers and acquisitions invariably result in fewer products on the market, reduced levels of service and higher prices for consumers.
And he warned all of those things could happen to the market for crop inoculants in Western Canada.
“If there is a merger, one could imagine the same effects might occur to the detriment of our customers as have occurred in other industries,” he said.
“We find that to be something worth resisting.”
He said the company has received a number of calls from farmers who are concerned about the impact of a takeover and who are urging the company to remain independent.
Philom Bios, a privately held corporation, employs about 50 people in a wide range of research, manufacturing, marketing and management positions. Among its products are the JumpStart, TagTeam and N-Prove.
Net earnings in 2000 were $1.26 million on gross revenues of $6.58 million, up from earnings of $283,000 and revenues of $4.71 million the previous year. The company says it expects to maintain an average annual growth rate of around 45 percent.
MBR’s initial offer on March 30 was to buy all outstanding shares of Philom Bios for $2.75 a share. The offer was to close on April 23.
Philom Bios’ board of directors recommended rejection of the offer at an April 9 meeting. The board said the bid fell far short of the true value of the shares, which were independently valued at between $5 and $6.36 per share, and said accepting would not be in the best interests of shareholders or customers.
The board would consider other alternatives to improve liquidity for shareholders who might want to cash in the value of their shares, including such things as a share buy-back or a public listing of the approximately 3.5 million privately held shares.
MBR responded on April 20 by extending its offer until May 14 and at the same submitting a proposal to the board for an “amalgamation” plan that it said would provide shareholders with $5 per share.
On April 23, the Philom Bios board sent a letter to shareholders saying that while $5 still falls short of fair value, it was prepared to enter into discussions with MBR’s parent Becker Underwood Inc. to discuss how the “proposed business combination” would benefit shareholders and customers.
“We need to clarify their intentions and set out some conditions,” Cross said, adding that the amalgamation is still in reality a takeover bid.
MBR, which recently expanded its Saskatoon plant, exports inoculants to more than 25 countries and is Canada’s leading seller of rhizobium inoculant.
