Agricore United has issued a formal and resounding no to Saskatchewan Wheat Pool’s offer to buy the company.
In a 34-page circular sent last week, the company’s board of directors advised shareholders not to tender shares to Sask Pool’s offer, saying it undervalues AU.
The bid appears to be dead in the water.
That’s because a condition of the pool’s offer is that it take ownership of at least 75 percent of AU’s outstanding common shares.
U.S. grain giant Archer Daniels Midland, which owns 28 percent of AU shares, said it won’t sell its shares under the existing offer, meaning Sask Pool can’t reach its stated minimum of 75 percent.
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AU officials said other major institutional investors have also indicated they won’t sell under the present offer.
“Security holders should know that as a consequence of ADM’s decision, one of the main conditions of Sask Pool’s offer will not be satisfied,” said AU director Jon Grant, head of a special directors committee dealing with the takeover bid.
However, ADM left the door open for Sask Pool to sweeten its offer, saying that to maximize shareholder value, it will consider “alternative control transactions” that are based on a fair valuation of AU securities, including any revised offer from Sask Pool.
In the circular, AU listed reasons for recommending that shareholders reject the offer.
- The $1 billion offer, based on a share swap at a rate of 1.3 Sask Pool shares for one AU share, along with cash and debt, is financially inadequate, according to AU’s outside financial and legal advisers.
- The exchange ratio proposed undervalues AU’s contribution to the proposed new company.
- The offer doesn’t provide AU shareholders an adequate “change of control” premium above the market price. Sask Pool said its offer provides a premium of 13 percent relative to the companies’ share prices on Nov. 7.
- Because the deal is based on a share swap, not cash, the risk to AU shareholders increases because share prices could decline.
- Sask Pool has provided no details on its estimate of $60 million in savings from combining the two companies, despite two requests by AU to do so. Such savings would be subject to significant risk depending on actions by the federal competition bureau, which is reviewing the proposed takeover.
- The offer fails to recognize AU’s superior asset base, long-term growth prospects and strong business momentum.
During a conference call with reporters and market analysts Dec. 13, AU chief executive officer Brian Hayward said the company is exploring alternatives to Sask Pool’s offer that may provide greater value to shareholders.
He declined to provide details, but said the company has received expressions of interest. Alternatives could involve making a deal with an alternative friendly bidder, known as a white knight, continuing as a stand-alone company, or turning the tables and making a counter offer to buy Sask Pool.
If a third party bidder makes a proposal that AU’s board of directors finds acceptable, ADM has the right under its business agreement with AU to match or exceed that offer.
Officials declined to say what would be a “fair price” for the company.
Asked if there was price at which AU would be obliged to advise acceptance, Hayward said the company’s duty is to maximize shareholder value.
