An investor fund now controls Canamino, a high tech oat processing plant in Saskatoon.
The Saskatchewan Government Growth Fund took control of the processor last week, after the owner, Ceapro Inc. of Edmonton, fell behind about $1.7 million in dividends and other payments.
SGGF is now talking with Can-Oat Milling about investing in Canamino.
Ceapro president Robert Binnendyk said the change of control was the only viable option.
“This was not the end result we were looking at, but on the other hand, through the change in control we get relief from $9.7 million of debt in Canamino” and other benefits, he said from Edmonton.
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Although it no longer controls the plant that provides it with the refined oat extracts it uses in products such as animal coat washes and diabetes screening tests, Ceapro still has a large investment in Canamino and will continue to source product from the plant, Binnendyk said.
SGGF president Gary Benson said it is the fund’s policy to let companies it invests in operate without interference.
“It becomes a judgment call when we think our investment is jeopardized to act, and we do that in the best interest of our shareholders,” he said.
With Ceapro so far in arrears, the fund felt it had to step in and try to “make Canamino a going concern,” Benson said.
It would do that by bringing in a partner with established markets.
“One such potential partner is Can-Oat, which has market access into the animal feed and human food markets.”
The Canamino plant produces food and feed grade products almost as a byproduct in its pursuit of high value extracts for the health and beauty markets.
“The difficulty with the latter (health and beauty markets) is that it takes a lot of time to access them. In the meantime Canamino operated at a loss,” Benson said.
He is now the sole director of Canamino and financial information about the company is being provided to Can-Oat to help it in its decision whether or not to invest. Saskatchewan Wheat Pool, which owns Can-Oat, will not comment.
Although the control issue appears settled, Binnendyk is unhappy SGGF wouldn’t accept Ceapro’s arguments that it would be better to keep the two companies together.
“We were fully integrated. We were providing significant technical support on the science side, doing the marketing of their products and we were working hard to develop customers in the food business …
“I’m not sure they knew or understood the total integration that was in existence. I think they assumed we were just on the board of Canamino.”
In 1993, SGGF invested $2.6 million in Class B preferred shares of Canamino. By this spring Canamino had paid $1.5 million in dividends and other payments, but had fallen behind by $1.7 million and would owe another $1.1 million in October.
But Ceapro believed it had a plan to deal with its arrears and keep the companies together.
In December it had an agreement with SGGF to convert its preferred shares in Canamino into Ceapro common shares if Ceapro was able to raise $5.5 million in new capital to pay its arrears and gain a better financial footing.
It raised about $3 million, but found its level of unsecured debt kept investors away. In March it won approval from unsecured creditors for them to convert their debt into a combination of Ceapro shares and cash. Binnendyk felt the way was clear to raise the remaining $2.5 million.
Meanwhile, in February, SGGF informed Ceapro it was having a meeting with Can-Oat.
“They promised they’d get back to me but didn’t, and it wasn’t until March 26 that they informed me they had a memorandum of understanding with Can-Oat,” Binnendyk said.
On March 27, SGGF informed him it was going to exercise its right to convert its Canamino preferred equity into voting shares, thus giving it 51 percent control of the company.
“It came very much as a surprise,” said Binnendyk.
Ceapro will now focus attention on distribution agreements for its animal health products and will seek a licensing agreement for its diabetes screening product.
