Saskatchewan Wheat Pool views the sale of its interest in a meat processing company as another move to focus on grain handling and reduce debt.
Mayo Schmidt, chief executive officer of the pool, said the company’s business plan includes returning to core businesses and eliminating underperforming assets.
“We will maintain (ownership of) businesses that perform to a certain level of profitability … we need to maintain businesses that are number one and two in the agricultural marketplace. This move is larger than the sale of Premium Brands …. Those businesses that do not perform to expectations are subject (to this sort of action),” said Schmidt.
Read Also
European wheat production makes big recovery
EU crop prospects are vastly improved, which could mean fewer canola and durum imports from Canada.
Formerly known as Fletchers Fine Foods, Premium Brands is the latest asset offered for sale by Sask Pool. The meat processor has lost money in recent years and its share value slipped from more than $23 in 1998 to below $15 last week.
Will Kalutycz, Premium Brands chief financial officer, said the volatility of the company’s share price is due in part to the large block of shares owned by pool.
“This sale will improve the liquidity of our stock when combined with our own share offering,” said Kalutycz.
The pool owns 41 percent of the publicly traded meat company and has negotiated a sales agreement for all of its 3,381,182 shares, subject to several conditions.
Most of the shares will be purchased by Premium Brands. Also, Raymond James Ltd., financial adviser to Premium Brands, will buy 292,099 shares for $4 million or $13.69 per share.
The pool will then sell remaining Premium Brands shares on the Toronto Stock Exchange.
Premium Brands will also offer some of its newly acquired shares to the public.
The conditions of the sale are subject to approval from financial regulators and the shareholders of Premium Brands and its subsidiary Goodlife Brands Inc.
The meat company will also have to secure debt financing to make the purchase and amalgamate Goodlife.
“The main thing is the value of the sale. It is about $46 million and that money will be used to reduce our debt,” said Schmidt.
“We currently have $750 million in utilization (debt). More than half of it is bank debt and we are working to reduce that amount.”
In addition to the cash return from the sale, Schmidt said the pool will show a $20 million accounting loss to equity in its fourth quarter.
The company said this loss reflected the difference between the price the pool originally paid for the shares minus earnings in the interim.
The pool bought its Fletchers-Premium Brands shares in the mid 1990s with major increases in holdings in November 1997 and April and June 1998.
In those two years the pool spent $33.4 million buying Fletchers-Premium Brands shares and recorded an additional $13.1 million in goodwill acquired through the purchase. The goodwill will be a part of the $20 million accounting writeoff, say pool officials.
Schmidt said in the era that the pool was investing in businesses like Fletchers, the decision to buy into all levels of the food production chain reflected what was happening in the global marketplace, but “times have changed.”
The pool will also receive a consulting fee of $1 million annually for three years from Premium Brands if the sale is approved.
Premium Brands until recently operated a hog slaughter facility at Red Deer but sold it to Olymel Foods of Quebec in March of this year.
The pool’s Heartland Livestock division has long-term supply contracts to that facility.
Schmidt said the pool does not need to own the packing company to guarantee a market for its hog production.
Kalutycz agrees, saying the sale of the Red Deer, Alta., facility resulted in the two companies “no longer having a core business relationship without the fresh pack pork operation,” and that the sale was mutually beneficial.
He expects the sale to wrap up by the end of June.
