SWIFT CURRENT (Staff) — Saskatchewan Wheat Pool members will be able to buy and sell shares in their company before they are ever listed on the Toronto Stock Exchange.
The proposal to turn the pool into a publicly traded company has raised fears among some members that the value of their investment in the company could drop sharply if a large number of farmers decided to sell their shares right off the bat.
In a bid to ease those concerns, the pool will provide an initial period of “in-house trading.”
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If the restructuring goes ahead, members will be asked if they want to retain their equity (in the form of shares), add to it, or reduce it. The company will then match up buyers and sellers at the initial share price as determined by a professional valuator.
Lyle Spencer, the pool’s chief financial officer, said if the initial demand to buy and sell can be satisfied before the shares are listed, it will provide price stability in the early stages of public trading.
“For there to be liquidity, there has to be interest on the part of people who want to buy and sell,” he said.
“But on the first day we don’t want $50 million worth of purchases or sales because it could have a distorting effect.”
Supply and demand
During that in-house trading period, the pool could face three scenarios in terms of supply and demand for share. The easiest to deal with would be if supply equals demand.
If more members want to sell shares than buy, then the pool will have to look for other investors, including employees. The pool itself will be prepared to buy “a fairly substantial amount” of shares, said Spencer, using debt financing.
If more members want to buy shares than sell, then the pool has two options. It could pro-rate the offering, in other words sell to buyers half or three-quarters of the shares they ask for, or it could issue new shares.
What will they be worth?
During a meeting in Swift Current May 31, several pool members tried to pin Spencer down as to how much their shares will be worth. But he said until the company is valuated by a professional consultant, any figures are pure speculation.
He did say the restructuring will not go ahead unless the share value set by the valuators is at least equal to the current equity held by members.
When the pool allocates patronage to members it issues common shares valued at $1 each. There are 286 million such shares outstanding, for a total value of $286 million.
“If the par value isn’t at least $1 on valuation, we’re going to put it on hold,” Spencer said. If a member has $10,000 in equity, it will be worth at least $10,000, less $25 for a Class A voting share, when the conversion takes place.
To attract new members, farmers wishing to join would be given an option to purchase stock at the current price. After doing a certain percentage of their business with the pool for two or three years, they will be eligible to buy those shares at the previously fixed price. If the value has declined, the option would be cancelled and the new members would go to the market instead.
