Credit rating agencies are keeping a close eye on Saskatchewan Wheat Pool’s hostile takeover bid against Agricore United.
Anil Passi of Dominion Bond Rating Service says both companies’ ratings are under review but will remain unchanged as the situation continues to unfold.
“We won’t conclude the review until the takeover bid is resolved,” he said.
Once that happens, agencies such as Dominion will have to assess a wide range of issues to determine a new rating, either for a combined company if the transaction goes ahead or for each individually if it doesn’t.
Read Also
Agriculture ministers agree to AgriStability changes
federal government proposed several months ago to increase the compensation rate from 80 to 90 per cent and double the maximum payment from $3 million to $6 million
“If it succeeds, we’ll have to look at the kind of deal, debt levels, synergies, any forced sale of assets, whether there is a market for those assets and at what price, what the company will do with new cash, and so on,” said Passi.
It’s too early to speculate on what the credit rating of a new combined company would be, he said, but added it’s more likely to remain stable or be upgraded than to be downgraded.
Both companies’ ratings were put under review following the announcement of the takeover bid Nov. 7.
SWP’s rating for senior secured debt is now BB-low, under review with positive implications.
AU’s rating is BB, under review with developing implications.
The “positive implications” tag attached to SWP’s rating reflects the fact that its current rating is the lower of the two companies.
“Sask Pool at BB-low is a notch lower than AU at BB, so it is more likely to benefit from a merger,” said Passi.
Dominion has stated on numerous occasions in recent years that there is overcapacity in the grain handling industry and rationalization is needed to ensure efficiency and profitability.
However, Passi said the company is neither endorsing nor rejecting the pool’s takeover bid, saying that’s up to the companies’ shareholders to decide.
“It will probably improve the efficiency of the industry and everyone might benefit from economies of scale,” he said.
“But if there is too much market dominance by one company, that can hinder the competitive environment.”
He said it’s a difficult and complex balancing act that will have to be sorted out by the federal Compeition Bureau in its ongoing review of the proposed transaction.
The bureau will undoubtedly be conducting a highly detailed, region by region assessment of the competitive implications of combining the two big companies, he said.
Together Sask Pool and AU own 38 percent of Western Canada’s country elevators, have an ownership or operating interest in all seven major grain handling terminals on the West Coast, own 57 percent of terminal handling capacity at Thunder Bay and have a major share of the farm input business.
