Sask Pool offers $1 billion for rival AU

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Published: November 16, 2006

Saskatchewan Wheat Pool is prepared to pay at least $1 billion in shares and cash to buy Agricore United.

The pool last week shocked the grain industry by announcing a bid to buy all of AU’s outstanding securities and create a handling and marketing giant that would dominate the prairie grain industry.

“We believe the benefits of our proposal are compelling for both companies,” said SWP’s chief executive officer Mayo Schmidt.

“By combining operations we will create the scale and scope of operations to enhance western Canada’s position in a global environment.”

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The proposal would have to be accepted by AU shareholders and then approved by the federal competition bureau before becoming a reality.

Here’s how the pool would finance the purchase of its bigger competitor, Canada’s largest grain company:

  • The purchase will be based on a share exchange ratio of 1.35, meaning that each common share of AU would be exchanged for 1.35 of SWP’s common shares. The ratio reflects the relative trading prices of the shares on the TSX as of Nov. 7.
  • Based on that calculation, the pool would issue 61 million common shares, along with another 19 million shares in exchange for AU’s convertible debentures, for a total of 80 million shares. It would also make a cash offer of $24 per share for AU’s Series A preferred shares.
  • Based on Nov. 7 share prices, the pool would be issuing $556 million worth of new common shares, and paying $27 million in cash for the preferred shares, for a total of $583 million.
  • The new company would also assume AU’s debt of about $450 million, resulting in a total value of $1.03 billion.

The pool said at the end of the day, AU shareholders would receive a 13 percent share premium from the proposed transaction, along with the prospect of higher share prices in the future.

Current SWP shareholders would hold a 53 percent ownership stake in the new company, with AU shareholders holding 47 percent. That despite the fact the AU would bring substantially higher earnings into the new company than would the pool. Schmidt said that reflects the cost to the pool of assuming AU’s high debt load.

“This is an excellent opportunity to bring greater value to farm customers and to shareholders of both companies,” said Schmidt.

He said regardless of the initial response from AU’s board of directors, the pool intends to make a formal offer to AU’s shareholders after it receives a shareholders list.

The pool said the merger would result in savings of some $60 million a year by combining various aspects of the two companies operation and assets.

It would have combined revenues of $4.3 billion a year and EBITDA (earnings before interest, taxes, depreciation and amortization) of $215 million, and market capitalization (the value of all outstanding shares) of at least $1.2 billion.

It would own 37 percent of prairie grain elevators, that’s 46 percent of prairie grain elevator storage capacity and would have an ownership or operational interest in all seven major export terminals at the West Coast.

Schmidt said the new company would improve grain flow, have better logistical and marketing services, provide a strong Canadian presence in international markets and benefit farmers, customers and shareholders.

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Adrian Ewins

Saskatoon newsroom

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