Just weeks after saying it was ready to begin expanding its business operations, Agricore United dropped the other shoe last week.
And that shoe fell about 1,800 kilometres to the south.
Canada’s biggest grain handling company announced it is buying Hi-Pro Feeds, a feed manufacturing business based in Friona, Texas.
Hi-Pro operates two facilities in Texas in Friona and Lubbock, and two in Dexter, New Mexico. It produces more than 500,000 tonnes of feed annually and serves more than 4,000 customers in seven southwestern states.
The $42.9 million deal is expected to be completed by mid-August, subject to certain closing conditions being met.
Read Also
Stacking Canada up on gene editing livestock
Canada may want to gauge how Argentina and other countries have approached gene editing in livestock and what that has meant for local innovation.
Bill McGill, vice-president of livestock services for AU, said the company has invested heavily in the western Canadian feed business in recent years, building two new plants and modernizing and expanding seven others, and needed to look farther afield.
“We feel in Western Canada we have the best set of assets in the most likely locations for the commercial feed business,” he said.
“So it was time to look outside of Western Canada for opportunities and this one presented itself.”
The expansion didn’t come as a great surprise.
During a conference call with analysts and reporters in early June, chief executive officer Brian Hayward said the company was planning a dramatic change in strategic direction that “could involve an expansion of our livestock division.”
Hi-Pro will boost the livestock division’s earnings contribution to the company to 22 percent from 15, based on conditions as of April 2006.
Anil Passi, a grain industry analyst with Dominion Bond Rating Service, said the deal was a good move.
“This helps diversify away from grain handling to livestock and also provides some geographic diversification.”
He said the relatively small size of the acquisition is positive, in that it doesn’t carry a lot of risk and will enable AU to establish a track record for investors.
He said DBRS will monitor the deal in terms of its ability to generate additional profit for AU.
“At the moment, this is in the realm of our current credit ratings for the company and it doesn’t change our view,” Passi said, adding the increase in debt is not a concern.
The company will continue to operate under the Hi-Pro brand and the existing management team will be retained. McGill added that Hi-Pro has its own expansion plans in the works, and the two companies will work together on any future changes.
