Viterra isn’t the only Saskatchewan grain company attempting overseas expansion.
Alliance Grain Traders Income Fund, a Regina-based pulse processing firm, has made a $104 million offer to buy Turkey’s largest pulse exporting company.
The offer is generating some chest-pounding in Canada’s grain community.
“We should actually take a certain level of pride in the fact that we are getting our own multinational grain companies that are Canadian based,” said pulse industry analyst Brian Clancey.
“It’s nice to see.”
The latest international expansion proposal has a twist. Eight years ago, Turkey’s Arbel Group established a red lentil splitting firm in Regina. Last week, the company it gave birth to made an offer to buy its parent.
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Saskcan Pulse was co-founded in 2001 by the Arbel Group and Saskatchewan entrepreneur Murad Al-Katib. Arbel owned 90 percent of the firm and Al-Katib the remaining 10 percent.
Over the ensuing years, Saskcan morphed into the publicly traded Alliance Grain Traders Income Fund, an international firm with eight plants in three countries and sales of $329 million in 2008.
Its latest acquisition target would add pulse, pasta and bulger wheat processing to the mix.
“It’s definitely a unique case where the child that they created grew and now the public company is acquiring the original founding company,” said Alliance president Al-Katib.
The new firm will control 40 percent of the global trade of lentils, up from Alliance’s existing 30 percent share.
“Farmers need to recognize one thing – a position of market strength is creating prices for them, positive prices.”
He said the new deal will help western Canadian lentil growers continue to find a home for what he estimates will be 2.2 million acres of lentils this year.
“Having a well-established presence in Turkey will enable Alliance to effectively service global markets by providing direct access to Western Europe, Africa and the Middle East,” he said.
Clancey doesn’t know if the deal will be good or bad for Canadian growers.
“If history in the pulse industry teaches us anything, it’s that if you become big, remain humble. Sometimes when companies get big, they lose their sense of humility and then the market punishes them for that.”
He said Alliance can’t afford to flex its muscles and squeeze a few more cents out of growers because while they may be large, they’re not the only game in town.
Wellington West Capital Markets Inc., one of the stock analyst firms that tracks Alliance, was bullish about the proposed acquisition of Arbel.
“We contend that a merger of these two businesses is highly compelling with a potential for numerous operating and financial synergies,” said Wellington analyst Robert Winslow in a June 18 commentary.
He is forecasting a near doubling of Alliance’s earnings before interest, taxes, depreciation and amortization to $75 million in 2010, up from an estimated $39 million in 2009.
Cost savings resulting from freight, inventory and processing efficiencies are expected to be a minimum of $5 million over the next two years.
“We believe there is a high probability of success for this transaction given the close working relationship between the two companies and the apparent value creation potential,” said Winslow in his assessment of the deal.
Arbel is already a big buyer and distributor of Alliance’s products and the largest shareholder of the fund. About 62 percent of Alliance’s 2008 sales were made into markets that are all within easy reach of Arbel’s asset base.
Clancey said there is no doubt that Alliance will benefit from having local people working on its behalf in one of its biggest markets.
“They categorically have the people who know how to do business there,” he said.
The Arbel group has operated in Turkey for 50 years and exports to 52 countries in Asia, Africa, Europe and the Americas. The firm generated revenue of $197 million US in 2008 and posted earnings before interest, taxes, depreciation and amortization of $25.1 million US.
It is Turkey’s largest pulse exporter and the fourth largest pasta producer in a country that ranks second only to Italy for pasta exports.
The combined firm would have more than one million tonnes of processing capacity, with 58 percent of it devoted to lentils, 12 percent to split peas, eight percent to pasta and the remainder to other grains and pulses. Half of the processing capacity would be in Turkey and 39 percent in Canada.
The head office would remain in Regina and Al-Katib would stay on as president and chief executive officer. Alliance has 290 full-time staff. The merger would add another 150, with some new jobs created in Regina.
Arbel owns 31 percent of Alliance and its shareholders would own a minimum of 31 percent and a maximum of 50 percent of the new company depending on how much cash is included in the deal.
If Arbel finds another buyer before the expected close of the proposed acquisition at the end of August 2009, it will owe Alliance a break fee of $3 million US.
