How much is United Grain Growers worth?
It’s a simple question, without a simple answer, that goes to the heart of the hostile takeover bid by Alberta Wheat Pool and Manitoba Pool Elevators to buy the 91-year-old grain handling company.
The pools say their offer of $13.75 per share is well above the actual value of the stock and provides a significant premium to shareholders.
“We tried to predict what they would earn in the future and we could not come up with numbers that justify $13.75 a share,” said Tom Budd, the pools’ financial adviser. “It’s a good bid.”
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UGG calls the offer totally inadequate and a “lowball bid”, but won’t say what its shares are really worth.
“We could say, but when you’re in a card game you don’t win by showing your hand,” says UGG president Ted Allen, adding shareholders should have faith that UGG’s board is acting in their best interests.
Both sides have marshalled lengthy and detailed arguments about the stock, complete with independent analyses, and mailed them out to shareholders.
The pools point to the fact they were able to acquire nearly 15 percent of UGG’s stock in January and February at prices ranging from $10.50 to $12.50.
- UGG says the fact its stock has traded at $14 or higher since the takeover bid became public proves the market doesn’t think $13.75 is enough.
- The pools say their offer represents a 34 percent premium above the stock’s average value in the 10 days prior to Jan. 21, the day they started buying large numbers of shares.
- UGG contrasts the pools’ $172 million bid with the fact the company has invested $130 million in its business in the last four years. The pools say past spending is irrelevant and what matters is how much the company will earn in the future based on today’s assets.
- UGG says its second quarter earnings for 1996-97 are up sharply from last year and points to continued growth. The pools say the second quarter earning of four cents a share is disappointing and their offer of $13.75 represents a huge multiple of UGG’s projected annual earning.
The pools also make a great deal of the fact that UGG issued two million shares of new equity last November at $11 a share, and say that undermines their claim just a few months later that $13.75 is inadequate.
“It’s incomprehensible they would do that if they knew the future was going to be so bright,” said Budd. “You would go out and promote the stock to get it up to a higher value and then do the equity issue.”
But UGG chief executive officer Brian Hayward rejected Budd’s analysis and accused him of playing fast and loose with the facts.
“Any investment banker or adviser will tell you that the price for an entire company differs a great deal from the price for a minority position in a company,” he said.
Hayward said it’s just common sense to expect that the value of a stock will be different in normal day-to-day-trading activity than when someone is trying to buy all the outstanding shares.
While the two sides bat their numbers back and forth, UGG’s shareholders have until March 27 to decide whether to sell their shares.
Individual stock brokers across the Prairies say they are also getting calls from farmers seeking advice.
One Saskatoon-based investment adviser with a major brokerage house said shareholders should ask themselves whether they’re more likely to increase their net worth by holding on to UGG shares or by selling them at the offer price and investing the proceeds somewhere else.
“I think $13.75 is a good price,” he said. What would he tell an investor who called up asking if he or she should sell to the pools? “I would likely say yes.”
But he added that while institutional investors and money managers may look at the pools’ offer in a very pragmatic manner, that’s not necessarily true of UGG’s farmer members.
“I’ve been getting calls from farmers and a lot say ‘we have some attachment to UGG and we don’t want to see it go down’,” he said.
