WINNIPEG – Once Archer Daniels Midland Co. becomes a minority shareholder in United Grain Growers Ltd., the U.S.-based multinational will be free to make a bid to take over Canada’s oldest grain company.
When the proposed alliance between the two companies was announced in May, UGG officials said a “standstill agreement” would prevent ADM from owning more than 45 percent of UGG’s common shares for the next 10 years.
But a close reading of the management proxy circular distributed prior to last week’s shareholders meeting makes it clear there are numerous conditions under which that agreement will not apply.
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It permits ADM to make an offer to acquire all the outstanding common shares if such an offer is open for at least 45 days and if at least 50 percent of the company’s other shareholders tender their shares to ADM’s offer.
Those conditions would not apply if a third party got into a bidding war for UGG.
Ability to end standstill
ADM will also have the authority to terminate the standstill agreement under a number of conditions.
However UGG officials downplayed the possibility of ADM making a takeover bid and defended the standstill agreement.
“In the normal course of events I would expect that (standstill agreement) to remain in place,” said UGG president Ted Allen.
And chief executive officer Brian Hayward said in the event of an ADM takeover bid, UGG’s board would remain free to tell the remaining shareholders whether its financial advisers felt the ADM bid was fair.
UGG legal counsel Chris Martin said the requirement that any ADM offer for all UGG shares be accepted by at least 50 percent of other shareholders will prevent a “creeping takeover” bid in which ADM would increase its stake from 45 to 50 to 60 percent.
ADM officials were not available for comment.
Alex Graham, president of Alberta Wheat Pool, said he believes the standstill agreement provides very little protection against an ADM takeover of UGG.
“Any time they choose, they can simply make an offer for the remainder of the company, let it outstand for 45 days and the deal’s done, provided the shareholders are willing to sell,” he said.
He also said the structure of the new grain operations committee in the proposed alliance will give ADM effective control over all of UGG’s grain business decisions.
That committee will consist of two people from UGG and two from ADM and will devise business strategies for the so-called “grain pipeline,” the operating units of the company that buy, transport and market grain from farm to port.
All decisions of the committee must be unanimous, which Graham said gives ADM “veto power” over all aspects of UGG’s grain business.
Hayward rejected that analysis, saying the committee will probably meet quarterly to make sure the company is doing what both partners want it to do.
“It’s four people in a room meeting probably every three months to look at what we’re doing together,” he said.
And he said ADM’s influence in the committee won’t produce any great change in UGG’s grain business strategy: “UGG and ADM very much see things the same way.”
When standstill deal could be killed
- If UGG’s board of directors makes changes to the grain
operations committee without the express written consent
of ADM.
- If UGG’s board refuses to take a course of action
unanimously recommended to it by the newly formed grain operations committee.
- If ADM decides it wants to fire UGG’s chief executive officer
in the best interests of UGG and the board refuses to do so.
