Pulse firms merge

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Published: May 17, 2007

Saskatchewan Wheat Pool’s takeover of Agricore United isn’t the only merger happening in Canada’s grain industry.

Two days before the prairie grain giants consummated their $1.8 billion deal, two pulse crop companies announced a merger that will create North America’s largest value-added exporter of lentils and peas.

Agtech Income Fund is acquiring Saskcan Pulse Trading Inc., in a deal worth an estimated $22 million.

The deal is deceiving in that Saskcan is clearly the bigger company with the track record of acquiring other firms. But by being the takeover target in this case, Saskcan has found a quick and inexpensive way to accomplish one of its goals.

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“It gave Saskcan the ability to reach the public equity market,” said company president Murad Al-Katib.

Agtech is a publicly traded company that operates a green lentil and canaryseed processing operation in Regina, capable of cleaning, sorting and bagging 75,000 tonnes of pulses per year.

Saskcan owns three plants: a lentil processor in Rosetown, Sask., a lentil and pea processor in Aberdeen, Sask., and the largest red lentil splitting operation in the Americas in Regina. Combined, they represent 265,000 tonnes of annual processing capacity.

The new entity, which has yet to be named, will be 50 percent owned by individual investors, 33 percent by Saskcan’s shareholders and 17 percent by Agtech’s investors.

The deal hinges on Saskcan completing its purchase of a fourth plant, Missouri River Ag Processing in Williston, North Dakota.

Al-Katib said Saskcan has a letter of agreement in place to buy the American processing operation. The deal is scheduled to close on May 31. The plant will be retrofitted with splitting equipment for processing peas and lentils and will have an estimated 100,000 tonne annual processing capacity.

Saskcan will use its newfound access to public equity markets to raise the $14 million required to buy Missouri River Ag Processing and to repay some of Saskcan’s existing debts, including retiring its venture capital obligations.

Richard Goldstein, executive vice-president of investment banking with Standard Securities Capital Corp., the firm that will be handling the public offering, doesn’t anticipate any problem raising the money.

“I really don’t at all. I hope and believe we will oversell this offering.”

He said investors will see the merger as a deal that makes sense for both firms. With 21 years of experience and strong earnings performance, Agtech was a viable business partner for Saskcan irrespective of its ability to raise capital on the Toronto Stock Exchange.

“That is almost like a big, fat coating of icing on the cake,” said Goldstein.

For Agtech the merger gives the low-profile company the opportunity to take advantage of Saskcan’s preferable freight rates, its extensive network of farmers and its export expertise through its relationship with Arbel Pulse and Grain Industry SA, a Turkish institution in the pulse industry.

“We should find substantial sales opportunities opening up for Agtech in the top end of the marketplace,” said Stephen Bodnoff, chair of Agtech’s board of trustees.

Bodnoff dismissed the notion that farmers might suffer from the merger of two Regina-based lentil processing firms, noting the industry is plagued by excess competition.

“It’s just a dirty-dog fight amongst the processors trying to do things cheaper and cheaper and the farmer is always the one who takes it on the chin,” he said.

Instead of holding the market captive, the world’s largest green lentil exporting nation is consumed by internal bickering.

“We believe by consolidating the industry we can actually force the prices up a bit,” Bodnoff said.

Before the merger can happen it must get approval from the Toronto Stock Exchange, Agtech’s unit holders and Saskcan’s shareholders, as well as meeting other closing conditions including the completion of the North Dakota purchase. All that has to take place before the memorandum of understanding expires on June 30.

“It will be a very busy couple of months,” said Al-Katib.

Goldstein said employees of both companies should be assured that consolidation doesn’t mean downsizing.

“We are talking about zero job loss, zero closures. If anything, this is opening up the door for more business, more hires.”

About the author

Sean Pratt

Sean Pratt

Reporter/Analyst

Sean Pratt has been working at The Western Producer since 1993 after graduating from the University of Regina’s School of Journalism. Sean also has a Bachelor of Commerce degree from the University of Saskatchewan and worked in a bank for a few years before switching careers. Sean primarily writes markets and policy stories about the grain industry and has attended more than 100 conferences over the past three decades. He has received awards from the Canadian Farm Writers Federation, North American Agricultural Journalists and the American Agricultural Editors Association.

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