Saskatchewan Wheat Pool has sold another piece of its shrinking
corporate portfolio.
The pool announced last week it has reached agreement to sell most of
the assets of CSP Foods to a Michigan-based bakery supply and
distribution company, Dawn Foods.
The sale of the food ingredient manufacturer, which is expected to be
finalized Feb. 25, will provide the pool with $35 million in net cash
proceeds, which the company will put against its sizable debt load.
“It will strengthen our balance sheet and provide the cash we need to
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reduce our debt obligations,” said Colleen Vancha, the pool’s director
of communications and investor relations.
Over the past two years the pool has raised almost $150 million by
selling its interest in seven companies and associated assets.
Those sales include Robin’s Foods, Xcan Grain Pool Ltd., Premium
Brands, Heartland Livestock Services, Heartland Feeds and The Western
Producer.
In its most recent financial report, for the three month period ending
Oct. 31, the company reported that it had managed to reduce its total
debt by $76 million from a year earlier. However, the company’s
long-term debt remained around $550 million.
Pool chief executive officer Mayo Schmidt said in a News release
news that
the divestiture program is part of the pool’s strategy of cutting
costs, improving working capital and focusing its resources on the
pool’s core business of handling and marketing grain and selling farm
supplies.
Vancha made it clear that future sales can be expected.
“We haven’t said this is the end,” she said. “When we do come to a
completion, we will say so.”
Grain industry analyst David Schroeder of Dominion Bond Rating Service
said the investment and financial community will welcome the sale of
CSP Foods.
He said an aggressive divestiture program is seen by lenders and
investors as a key component of restoring the pool to some semblance of
financial health.
But he added that’s only one piece of the puzzle.
“The asset sales alone won’t resolve the debt problem,” he said. “The
core profitability has to improve to justify the debt level.”
Sask Pool invested in a wide range of Canadian and foreign companies
during the mid- to late-1990s as part of a strategy of diversification
aimed at protecting the company’s financial position during years of
small crops or slow grain movement.
But Schroeder said the idea of diversification has been widely
discarded and replaced by a simpler and more conservative strategy.
“Any company with volatility like that, we emphasize and encourage to
keep the balance sheet in good shape,” he said. “Don’t try and expand
into something you don’t know. The idea of trying to be a conglomerate
is something few companies can pull off.”
CSP has production facilities at Saskatoon and Etobicoke, Ont., as well
as sales offices across Canada and in Ohio and bake centres in
Saskatoon, Toronto and Montreal. It employs 435 people.
The sale includes Humboldt Flour Mill in Humboldt, Sask.
Dawn Foods has manufacturing and distribution facilities around the
world and employs 2,000 people. CSP currently sells Dawn Foods products
in Canada under a licensing agreement. After the sale is finalized, CSP
will operate under the name Dawn Foods (Canada) Ltd.
