There was a glaring omission in a recent merger announcement.
In the 10 pages of information that were sent out to media outlets to inform them of the proposed merger between Agricore and United Grain Growers, there was no mention that an American grain company could eventually own 45 percent of the new company.
“It wasn’t left out on purpose,” said Neil Silver, president of Agricore. “We certainly weren’t trying to hide anything.”
The News release
news stated that Archer Daniels Midland would get 19 percent of the merged company and would have the “pre-emptive right” to purchase 25 percent of Agricore United within 20 days of the effective date of the merger, which is slated to occur Nov. 1.
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But there was no mention that after three years ADM can slowly “creep up” to a 45 percent ownership position by buying a maximum of five percent of the outstanding shares a year.
For some observers, like Canadian Wheat Board director Ian McCreary, ADM’s ability to buy that much of the company is “the underlying issue” of the whole merger.
“A concentrated shareholder with 45 percent clearly has overwhelming control,” said McCreary.
Under the merger proposal, which has yet to be approved by Agricore delegates, shareholders and the federal competition bureau, 12 of the 15 members on Agricore United’s board of directors will be elected by farmer members. The remaining three will be elected by shareholders. Two of those three will be appointed by ADM.
McCreary said regardless of the board structure, the company would no longer be controlled by farmers. ADM would be at the helm of the new entity.
David Schroeder, a grain industry analyst with Dominion Bond Rating Service, disagrees with that assessment.
“The board would still be dominated by farmers and management will answer to the board.”
Schroeder said if ADM wanted to throw its weight around it would have to buy 100 percent of the company and that’s not its style. The multinational grain corporation often keeps a minority stake in companies and takes a “hands off” approach to the management of those entities.
“They’ve owned 42 percent of UGG since 1997 and haven’t initiated any radical change for the direction of UGG,” he said.
“They don’t even necessarily care if this venture is overly profitable. They want a stable, secure supply of grain for their mills in the U.S.”
Schroeder thinks ADM’s continued involvement in the new company is a good thing for current and future investors.
“It would mean a capital infusion for the company, most likely, and that would be very positive. This is a company with too much debt.”
But he said ADM will likely see what happens with deregulation in the industry before sinking more money into the merged company.
Silver said ADM’s ownership position in Agricore United can never increase beyond 45 percent unless it buys 100 percent of the company.
He said that’s an improvement from the old arrangement between ADM and UGG in which the American grain handling giant was allowed to buy up as much stock as it wanted after 10 years.
Another change under the merger deal is the dissolution of the Grain Operations Committee. That was a committee of two ADM and two UGG people that had “almost a kind of veto power” over the board, said Silver. It also had the power to remove the chief executive officer.
“Those things are gone and that certainly takes away what the potential controlling factors were that ADM had,” he said.
