Steve Siemens keeps losing his grain company.
Back in the 1980s, the Altona, Man., farmer was a customer with Manitoba Pool Elevators.
In 1997, MPE disappeared, merging with Alberta Wheat Pool to create Agricore Co-operative. Siemens transferred his business and loyalty to the new co-op.
In 2001, Agricore was taken over by United Grain Growers, creating Agicore United. Disappointed, Siemens continued doing business with AU, out of loyalty to the local elevator and community.
Now, it’s about to happen again.
With last week’s news of plans to merge AU and James Richardson International into a new company to be called Richardson Agricore, Siemens is resigned to losing his grain company of choice for the third time in 10 years.
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“Farmers just don’t seem to have any control anymore in the grain industry,” Siemens said last week. “It’s all about shareholders.”
Both JRI and Saskatchewan Wheat Pool are bidding for AU, Western Canada’s largest grain handling company.
The battle for AU began Nov. 7, when Sask Pool launched a hostile takeover bid that was rejected by AU’s board of directors.
AU began searching for an alternative partner, and on Feb. 21, jointly announced an agreement with JRI.
AU’s board of directors has recommended to shareholders that they approve the deal with JRI, but the outcome remains in doubt, pending regulatory and shareholder approval and the possibility of a more attractive counter-bid by Sask Pool.
If AU had successfully resisted the Pool’s bid, it could have remained a stand-alone company. But it now appears likely to be taken over by one bidder or the other.
Siemens said he’s no longer surprised by anything in the grain industry, but he is disappointed by recent developments.
“For the farmers, none of this is good news.
“At the end of the day there will absolutely be less competition for farmer’s business.”
He added the notion of loyalty to a particular grain company is a relic.
“Most farmers now just shop their product around every year,” said Siemens. “The name on the elevator doesn’t mean much.”
The emergence of JRI to help AU fight off Sask Pool’s hostile bid followed weeks of discussion between the two firms, culminating in an intense 10-day negotiating session just before the Feb. 21 announcement.
Under the terms of the offer, holders of AU securities will receive $6.50 in cash and 0.509 in Richardson Agricore shares for each AU share. Holders of Series A preferred shares will receive $24 per share.
Sask Pool’s offer, which expires March 7, works out to roughly $3 in cash and one share in the new company for each AU share. The Pool has not ruled out sweetening its bid in response to the JRI offer.
Jon Grant, chair of an AU committee that has been dealing with the issue, said the JRI offer provides greater value to AU shareholders than does the Pool’s bid.
“Not only does it provide more cash, but it also possesses a lot less risk,” he said.
The cash portion of the transaction would be funded by $125 million from James Richardson and Sons Ltd. (the parent company of JRI), and $266 million from the Ontario Teachers Pension Plan.
While officials of both firms describe the deal as a friendly merger between willing partners, the Richardson business group appears to be in control.
The new company’s 103.9 million shares would be owned 50.5 percent by JRSL, 20 percent by OTPP and roughly eight percent by Archer Daniels Midland, which owns 28 percent of AU.
As well, James Richardson & Sons Ltd. will nominate the majority of the 11-member board of directors, which will be chaired by JRI chair Hartley Richardson.
Chief executive officer of Richardson Agricore will be Curt Vossen, currently CEO of JRI. There is no indication that AU chief executive officer Brian Hayward will have any position in the new company.
The decision to become a publicly traded company represents a significant change for the Richardson family, which has always run its businesses, whether in grain, shipping, oil and gas, real estate or financial services, as private, familyÐheld operations.
Recent published reports have pegged the value of the Richardson’s holdings at around $1.8 billion, ranking it 20th among Canadian business families.
Richardson said Richardson Agricore will be a “true Canadian champion,” a phrase originally used by SWP chief executive officer Mayo Schmidt to describe the proposed SWP-AU combined company.
“The combined company will be well positioned to create significant value for its shareholders and connect its customers to even greater market opportunities than we can today,” he said.
Based on the current assets and latest financial report, here’s a sketch of what the new company might look like.
- It would have combined sales of around $5 billion (about $3 billion from AU) and combined earnings of around $226 million (around $140 million from AU).
- The combination would produce savings of about $62 million by eliminating overlap and staff. SWP estimates its proposal would create savings of $60 million.
- Richardson Agricore would operate 138 primary elevators, representing about 41 percent of licensed facilities in Western Canada. AU and JRI compete directly at only five locations across the Prairies.
- Total grain handling capacity for the new company would be 1.88 million tonnes, about 36 percent of total system capacity.
- It would have a combined grain market share of about 50 percent, based on AU’s 35 percent and JRI’s 15 percent.
- It would own three of the seven major grain terminals at Thunder Bay, representing 45 percent of capacity. At Vancouver, JRI owns one terminal that it currently operates with SWP, while AU owns two, one of which is being sold through the federal competition bureau.
In every instance, the degree of concentration created by the takeover would be less than that associated with a SWP-AU combination, which could make for easier dealings with the federal Competition Bureau.
