The company that was once Saskatchewan Wheat Pool is expanding its reach after nearly a decade of healing its rapped knuckles.
Its last value-adding venture ended in near financial collapse, but Viterra officials insist the outcome will be different this time.
“We are being aggressive but also highly selective and disciplined,” said Mayo Schmidt, chief executive officer of Viterra, the name adopted after the Pool bought Agricore United in 2007.
His predecessor, Don Loewen, was far less restrained in describing his Project Horizon expansion program.
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“In fiscal 1997, our first year as a publicly traded company, Saskatchewan Wheat Pool took several bold steps in a journey that is defining the future of prairie agriculture,” he said in that year’s annual report.
“We embarked on an ambitious capital expansion, the largest in the company’s history.”
Project Horizon was a $270 million plan to build 22 concrete terminals to replace many of the Pool’s more than 400 small wooden elevators. But Loewen’s hunger for growth went well beyond that.
From 1997 through 1999, the Pool spent $799 million upgrading its elevator system and acquiring or investing in a slew of companies, including international grain terminals, hog production facilities, farm supply outlets, feed facilities and mills.
Many of the purchases and upgrades were financed with long-term debt, a strategy that eventually brought the Pool to its knees, forcing it to revamp its balance sheet and start from scratch.
“They weren’t able to service their debt. That’s what crunched them,” said Anil Passi, Viterra analyst at Dominion Bond Rating Service.
Schmidt’s growth strategy is different, one where equity and cash will play the starring role.
“We have one of the strongest financial platforms of any company in our sector in North America today and perhaps globally,” he said in a recent interview.
In 2007, the Pool acquired the assets of Agricore United in a $1.8 billion hostile takeover in which investors provided half the funds.
The new entity was called Viterra and it now sits on $750 million in cash and equity that will be used to finance further purchases.
“We are looking at a number of opportunities we think make good sense for the company,” Schmidt said.
Expansion could happen in any of the company’s business units, but Viterra has already rejected two deals because it was not willing to pay peak values for the businesses.
“We’ll pick our time and it will be at our price,” Schmidt said.
“We’re hopeful that within the next three to six months we should have a couple of opportunities that mature to completion.”
Murray Fulton, an agricultural economist at the University of Saskatchewan, doesn’t doubt that Schmidt will continue on an expansion path after the success he had with the Agricore United acquisition.
“Here’s a fellow that has a real objective for growth. It’s part of who he is,” Fulton said.
“I would not be at all surprised if they made another major, major move. What it will be, I don’t know.”
Hugh Wagner, general secretary of the Grain Services Union, which represents many of Viterra’s employees, thinks Schmidt may be seeking international grain assets to position the company to operate in an environment in which the Canadian Wheat Board no longer has a monopoly.
“In order to operate internationally they would have to have that kind of reach and expansion to replace what the wheat board now does,” he said.
Schmidt said during a news conference announcing Viterra’s third quarter results that potential additions to the company’s operations could happen in the United States, Australia and Europe and possibly India and China.
Whatever the investment, Passi said the Agricore United deal shows the 84-year-old company has learned a valuable lesson.
“Go ahead. Look at things. Grow. Make investments. Make acquisitions. Let’s just be sure we finance them prudently. That’s the lesson.”
