Mayo Schmidt isn’t expecting a counteroffer or a third player to enter the picture as Saskatchewan Wheat Pool continues its attempt to take over Agricore United.
The pool chief executive officer told reporters after the company’s annual shareholders’ meeting that a counteroffer isn’t practical because the pool is trading at a higher multiple than AU. Both companies trade on the Toronto Stock Exchange.
“Should the alternative be discussed, it would mean a premium for Saskatchewan Wheat Pool,” he explained.
Sask Pool’s offer for AU provides a premium of 1.35 pool shares for each of Agricore’s.
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Schmidt said typically these types of transactions happen at an at-market price.
“In this particular case we have acknowledged what AU is bringing to the transaction, which is why we proposed the 1.35 pool shares for one Agricore. So, they receive that premium plus they receive the premium for the sharing of the $60 million in synergies.”
Schmidt also said it’s impractical for Agricore United to take over the pool because the pool’s market capitalization, at more than $750 million, is larger. Also, AU’s debt is higher.
“We have $33 million net debt,” he said. “They have just under half a billion dollars in debt that we would assume, so in terms of trying to adjust the transaction, it would be very problematic for them, very difficult.”
Schmidt said Sask Pool is still considering Agricore’s rejection of its offer and how it might react.
National Bank Financial analyst David Newman suggested the pool will have to increase its bid to sweeten the deal.
Schmidt said AU shareholders should consider what would happen to share prices if the transaction doesn’t occur. AU shares climbed 36 percent between Nov. 7 and Dec. 13.
He doubts a third company will get involved because the price has increased so much.
As well, the Canadian industry needs to consolidate, he said. The Canadian marketplace is regulated, which can also be a barrier to entry. And, any other buyer has to consider the large block of Agricore owned by Archer Daniels Midland.
Asked if the situation would change without the Canadian Wheat Board, Schmidt said it might be a consideration for American multinationals.
