They were bold and optimistic words, promoting the benefits of a proposed merger of grain companies, uttered by the chief executive officer of Saskatchewan Wheat Pool.
“The reality is we have an opportunity here to create a major Canadian grain company that can stand shoulder to shoulder with ADM, Cargill and ConAgra,” he said.
“Are we going to seize that opportunity or not, that’s the question.”
That could easily have been Sask Pool chief executive officer Mayo Schmidt talking about the Pool’s recent $1.8 billion takeover of Agricore United.
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But it wasn’t.
It was former CEO Don Loewen, speaking in 1997 about the benefits of merging Sask Pool, Alberta Wheat Pool and Manitoba Pool Elevators into one so-called “superpool.”
The reasons cited for the merger talks a decade ago sound familiar to anyone who has followed the Pool’s takeover of AU: it would ensure a strong Canadian presence in the grain handling industry; create savings and efficiencies; provide a strong base for investment in value-added processing and increase access to export grains.
Despite support from the leaders of all three pools, the 1997 talks failed, as did similar discussions in 1989 and on several occasions in the 1960s.
Gordon Cummings, who was chief executive officer of Alberta Pool in 1997, considers it a missed opportunity.
“That combination of the three pools would have been the dominant player in the industry, been better positioned at less cost than competitors and been strong in all three provinces,” he said in interview from his home in Ontario.
He said the talks failed because Sask Pool laid out a series of conditions, including that it would control the board, Loewen would be CEO, the head office would be in Regina, and it would operate under Sask Pool legislation and stock plan.
The other two pools thought those decisions should be up to the board of the new company.
“It was an obvious takeover and the farmer members in Alberta and Manitoba were never going to approve it,” Cummings said. “They would have approved a real merger, but not a takeover.”
Loewen could not be reached for comment.
Garf Stevenson, president of Sask Pool when serious merger negotiations among the three pools were conducted in 1989, recalls one of his colleagues at the company saying at that time that if the pools didn’t merge, they would one day wish they had.
Stevenson said the negotiations were unsuccessful because the Manitoba and Alberta pools were reluctant to give up their provincial identity and be swallowed by the much larger Sask Pool.
“We thought there were lots of good reasons for a joint operation of the three, but it just didn’t materialize,” he said from his home in Regina.
With Sask Pool’s successful takeover of AU earlier this month, the dream of merging the pools into one company has been realized, but in a much different way than previously envisioned.
“In some ways I thought it was inevitable, but I never thought it would happen the way it did,” said Stevenson.
After the 1997 talks failed, the pools looked at other options. Later that year, Sask Pool went to court to gain access to United Grain Growers’ list of shareholders, a likely prelude to a takeover attempt.
But Alberta Pool and Manitoba Pool Elevators pre-empted that by jointly launching a takeover bid of their own against UGG. That was abandoned when Archer Daniels Midland put in a richer offer to acquire about 30 percent of UGG’s shares.
The Manitoba and Alberta pools then merged in 1998 to create Agricore, which was in turn taken over by UGG in 2000 to create Agricore United.
“I think there was a certain amount of vindication when we took over Agricore,” said former UGG president Ted Allen. “We created an entity that had plenty of critical mass and was the largest grain company in Canada.”
As to the latest takeover, Allen said it’s a good time to undertake such a venture, with the future of the Canadian Wheat Board in doubt and the prospect of more operating and logistical freedom for grain handlers.
But he thinks Sask Pool faces a big challenge.
“If they’re going to support the valuation of the new company, they clearly have to be a lot more profitable than they have been the last 10 to 15 years,” he said.
The big winners in the short term, said Allen, are AU shareholders, who saw the value of their investment increase by 147 percent in the past six months. James Richardson International also wins, he said. It lost the bidding war for AU, but receives a $35 million fee from AU for breaking an earlier deal to sell to JRI and it bought 15 new elevators and nine farm service centres from the merged Sask Pool-AU.
Cummings said he’s surprised that the three pools and UGG are have now been rolled into one company.
He recalls that when the Alberta and Manitoba pools talked to the federal Competition Bureau about buying UGG, they were told in no uncertain terms that if they were successful, there would be no chance of gaining approval for a future merger with SWP.
It was clear then that consolidation was necessary and inevitable, he said.
The key to success for the new company will be the future role of the wheat board, he added.
“The only way this makes sense is if the CWB either disappears or becomes solely a marketer of grain and doesn’t meddle in the logistics and transportation and leaves that to the grain companies,” he said. “That’s the only way they make full use of the efficiencies of the high throughput elevators.”
