While companies like Saskatchewan Wheat Pool and United Grain Growers have found their footing on the stock exchange merry-go-round, smaller outfits are stumbling off the revolving platform.
The management team of Ag Growth Industries Inc. has decided its three-year experiment as a publicly traded company has left them reeling and dizzy.
Three directors and officers of the Saskatchewan company have secured financial backing from unnamed sources and have submitted a proposal to shareholders to privatize the company.
“We came out of the gates strong,” said Ag Growth president Rob Stenson, who is part of the group attempting privatization.
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“We had decent trading in the stocks, but at the end of the day agriculture went in the tank … . Agriculture went out of favor.”
Ag Growth began trading on the Alberta Stock Exchange as a junior capital pool in 1997. It was a publicly traded version of Batco Manufacturing Ltd., a short-line manufacturer from Swift Current, Sask.
The goal of the company was to acquire a series of short-line manufacturers and take advantage of purchasing and marketing strengths. Shortly after Ag Growth began trading on the exchange, the company bought Wheatheart Hydrostatic and Machine of Saskatoon. The only purchase since then has been a line of pickups from a defunct combine manufacturer.
Stenson and his management partners control approximately 30 percent of Ag Growth’s 8.4 million shares. They are offering to buy the remaining shares at $1.25 for common and $1.50 for preferred.
Average share prices have been between 75 and 80 cents over the last six months, with a low of 60 cents and a high of $1.15 that occurred shortly after the offer to purchase was announced.
Out of favor
Stenson said junior growth companies like his are out of favor with institutional investors such as pension funds and mutual funds, which control most of the money pouring into stock exchanges.
To get noticed these days, a company needs to be worth a minimum of $100 million, but he said Ag Growth’s market value is around $10 million.
“We’re just too small of a company to be on the radar screens of these large institutional investors.”
Stenson said capital tends to be flowing into high-tech stocks like Nortel Networks rather than “old metal bender” outfits like Ag Growth. Combined with the downturn in the agriculture industry, this trend has made it difficult for the company to attract investors.
“Right now we’re sort of a glorified private company anyway because our stock is so illiquid it goes days on end without a trade even going through.”
Stenson said Ag Growth’s shares are severely undervalued and that has forced the company to forgo opportunities to acquire niche manufacturers of short-line equipment that could have expanded its product line.
“I guess we naively have been focusing on building a business and we’ve tried to do it ethically and not hype the stock and actively promote ourselves.”
He said the company was reluctant to raise capital with a stock price hovering around 60 or 70 cents a share because that would further dilute the existing share base.
He is more optimistic about raising money through the private equity market.
The management group’s proposal must be approved by a special committee of the board of directors before it can go ahead. There are also regulatory and financing hurdles.
Jack Lee, chair of Ag Growth’s board of directors, is on the committee reviewing the proposal. He owns more than one million shares in Ag Growth, approximately 15 percent of the company.
Stifling expansion
Lee said he isn’t disappointed with Ag Growth’s performance. The company isn’t losing money, but it can’t secure the financing required to expand the way it had envisioned.
Ag Growth generated revenues of just under $8.5 million for the first nine months ended Dec. 31, 1999, an increase of 37 percent over the same period last year. Earnings of $1.5 million are up 23 percent over the nine months ended Dec. 31, 1998.
Lee agreed that the stock is undervalued and he thinks the management team is offering a fair price. He said he will sell all his shares if the board approves the offer.
And he agrees with Stenson that the company should have an easier time raising capital in private equity markets.
“At the moment there is a fair amount of equity that could be accessed by Ag Growth if it were private that it can’t access as a public company.”
