SASKATOON (Staff) – About 15 percent of the shares now held by Saskatchewan Wheat Pool members are expected to go unsold during the pool’s in-house trading period.
“We’re assuming there’s just going to be $50 million not taken up by members or employees,” said pool treasurer Erin Canham. “That’s our best guess.”
The share offering can’t go ahead unless all Class B shares available for trading during the in-house trading period, which begins Jan. 15, are bought.
After the in-house trading period ends Feb. 14, any shares not purchased by members or employees will be offered to investment dealers across the country at $12 a share.
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If any unsold shares remain after that, the pool will buy and cancel them so the shares can be listed on the Toronto Stock Exchange in mid-March.
Canham said the pool doesn’t expect to have to do so.
“At the end of the day there is no purchase and cancellation by SWP,” he said. “All of the shares find a home, by being resold to an employee, an individual or a pension fund or otherwise.”
A document filed with the Saskatchewan Securities Commission estimates that between $50 and $125 million worth of Class B shares will not be taken up by members during in-house trading.
Unsold shares at $50 million
RBC Dominion Securities says in the Dec. 14 letter to the pool it assumes the actual “overhang” of unsold shares will be around $70 million. If employees purchase $20 million worth of shares as expected, that would leave $50 million unaccounted for.
Critics of the pool’s share conversion said the RBC letter supports their contention that a large number of pool members oppose the plan.
“It is a sign of weakness to have so many farmers saying they are not willing to support SWP’s share plan financially,” said John Burton, of a group called Co-operating Friends of the Pool.
But Canham disagrees , saying the projected $50 million overhang is a small amount and reflects the demographics of the pool’s membership.
“If you look at the age of our membership and the equity the older members hold, they may be in a position where they were looking at retiring from farming in any event,” he said, adding the pool would have to redeem $100 million over the next five years under the old equity structure.
In the letter, RBC gave reasons for setting the trading range for Class B shares at between $11.50 and $14.50.
Positive factors supporting the share price include the pool’s diversification efforts, rationalization of its grain handling system and its dominant market share.
But the potential value of the Class B shares is weighed down by several other factors, including the fact that they carry no voting rights.
“Board representation is a key issue with investors, who normally expect to have some degree of influence over their economic investment,” said RBC. “As a result, the trading value of the Class B shares is expected to be significantly impacted by the lack of investor representation.”
Some institutions won’t invest in restricted voting shares, thus reducing the number of potential investors. A study by RBC indicates that in Canada, non-voting shares trade at an average two to four percent discount to voting shares.
Other factors working against the share price include regulatory uncertainty in the grain industry, the cyclical nature of the pool’s business, the size and power of the pool’s competitors, the 10 percent ownership restriction on Class B shares and the small investor following for the food sector.
