The merger of two Canadian grain marketing companies could open the door to more American investment in western Canadian agriculture.
Archer Daniels Midland, one of the world’s biggest grain companies, now owns 42 percent of United Grain Growers.
If Agricore and UGG merge, the American giant would own a 19 percent share of the newly formed company – Agricore United.
But ADM would also have the opportunity to increase its piece of the pie to 25 percent within 20 days of the effective date of the merger.
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That option to buy an additional six percent of the merged companies has raised a few eyebrows.
“I would say that’s pretty major growth,” said Ed Tyrchniewicz, agricultural economist at the University of Manitoba.
UGG chief executive officer Brian Hayward said the option was inserted into the agreement at ADM’s request but he wouldn’t speculate on whether it would be acted upon.
“They support this,” Hayward said.
“They are interested in having a meaningful percentage.”
Tyrchniewicz said his gut feeling is that the American-based company will end up owning 25 percent of Agricore United if the merger is approved.
While ADM could be sinking more dollars into the new venture, there is considerable debate over what that additional investment could mean in terms of influence.
The man who will be put in charge of running Agricore United thinks it means very little, since ADM would go from owning 42 percent of a Canadian grain company to a possible 25 percent ownership position.
“ADM’s percentage participation has been reduced and ADM has exactly the same number of seats on the board of the new company as they did before,” said Hayward, who will be CEO of the merged company if plans proceed.
Shannon Storey, women’s president of the National Farmers Union, said no matter how the board is made up, ADM will have more power in western Canadian agriculture as a result of the merger.
“It stretches far beyond this simple 19 percent that they’re now going to have voting control over.”
She said the company can exert economic influence by deciding how much business it wants to send to Canada or what joint ventures to work on south of the border.
“I think that they’re going to have a disproportionate amount of influence on the company’s decisions, simply because they are the party with capital,” said Storey.
The new company will have 15 board members. Twelve of them will be elected farmers, half of whom will come from UGG and half from Agricore.
The remaining three board positions will be appointed, two of those by ADM.
Hayward said it is an act of Parliament that 12 of the 15 seats will be reserved for farmers unless 75 percent of the shareholders vote to change that.
He expects about 50 percent of the new company’s shares to be owned by farmers.
“The only way that ADM can increase its clout from a governance point of view is if farmers say that they want that to happen.”
Tyrchniewicz said one way ADM could gain more control is if the farmer-elected members voted “along party lines,” with the Agricore members voting one way and the UGG members voting the other.
The deciding votes would then be held by the ADM-dominated appointed members.
But he and Hayward said the co-operative leanings of Agricore’s members and the more capitalistic slant of UGG shareholders aren’t as black and white as they used to be, so they don’t anticipate the board to be split down the middle on many decisions.
Agricore president Neil Silver said the alliance with ADM was a selling feature of the merger.
“We see it as a positive. The fact that ADM is one of the major processing companies in the world has to have a positive effect and a positive opportunity.”
Tyrchniewicz said that alliance will definitely help Agricore members market grain more directly into the United States.
“The trade-off is really better market access into what is a very competitive international game versus what might be described as more local control.”
