An American grain company has a deal in place to buy one of Canada’s biggest pulse and special crops firms.
The Scoular Company will acquire the assets of Legumex Walker’s special crops division for $94 million.
The value of the deal blossoms to $174.6 million with the addition of working capital, such as inventory, accounts receivable and cash on hand.
“These will be our first Canadian assets and that’s one of the things we’re very excited about, to get a good Canadian footprint of assets and get a high quality management team that comes along with those assets to run them,” said Scoular chief operating officer Bob Ludington.
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Scoular is a 123-year-old grain company with nearly US$6 billion in sales. It has 130 independent business units but none of those were heavily involved in the pulse and special crops business.
“It has been on our strategic map to increase our product diversity as well as our geographic diversity,” said Ludington.
Customers have been asking the company to provide them with pulses and special crops. The company has missed out on a couple of acquisitions over the past few years.
The Legumex Walker deal is subject to approval by two-thirds of the company’s shareholders at a meeting scheduled on Nov. 9.
Joel Horn, president of Legumex Walker, said it was a bittersweet day because if the deal goes through, a company that was formed four years ago by the merger of Manitoba’s Roy Legumex and Saskatchewan’s Walker Seeds will be dissolved.
He said the company built a great collection of assets in the special crops business with 14 plants located in Canada, the United States and China. But it couldn’t get out of the financial hole it dug with the construction of its Pacific Coast Canola (PCC) crush facility in Warden, Washington.
“I guess that’s how I feel is quite a bit of pride on the special crops side and pretty proud of what we did at PCC but maybe sad in terms of the financial performance. I guess that’s as honest as I can be about it,” said Horn.
The company estimates the Scoular deal will net shareholders $2.50 to $2.75 per share after repayment of all obligations. Legumex Walker shares closed at $2.20 on Sept. 14, up from $0.90 at the close on Sept. 11.
“As I told some of my staff today, it’s not every day that you see your stock go up 140 percent,” said Horn.
Shares sold for $8.85 when the company was first listed on the Toronto Stock Exchange in July, 2011. Prices have been on a steady and precipitous decline since that date.
Horn said the stock price really took a tumble when investors became worried about the faltering US$110 million PCC investment.
“The first time that the canola plant got hit hard was when we had the rail congestion issue a couple of winters ago,” he said.
Since then it has been hammered by dismal crush margins and the weakening Canadian dollar.
The share price hovered around $4 for years and then plummeted below $1 after the company announced on July 31 that it had defaulted on a $54.6 million loan for the canola plant.
Horn said company executives and board members contemplated selling the canola plant and continuing on in the special crops business but it was determined that the Scoular deal would bring the best value to shareholders.
Legumex Walker also has a non-binding agreement to sell the canola plant to an unnamed buyer. The company does not expect to receive any value from the sale after servicing the debt for the plant.
Cormark analyst Marc Robinson believes the plant will be sold to Archer Daniels Midland or to Glencore, which already has a 16 percent stake in the facility.
Some analysts say the canola plant was doomed from the start because it was located a long way from where canola is grown in the Canadian prairies.
Horn insists it was a good location because the plant produces oil for consumers in nearby California, including the growing market for non-genetically modified oil.
“The strategy has been working. We just didn’t have enough runway because we just weren’t capitalized enough,” he said.
Ludington said it will largely be business as usual at the special crops facilities.
“The difference will be they’ll be operating with our balance sheet, our corporate support behind them as well as the additional customer demand we’re going to bring to their products.”
Scoular intends to invest in the special crops plants over the next couple of years.
“(Growers) will see improvements to the assets, whether it’s truck dumping capability, moving trucks through faster and maybe different marketing programs,” said Ludington.
He said there are other Canadian “target acquisitions” on the horizon.
“Hopefully we’ll be making some more announcements in the not-too-distant future that would add to the Legumex portfolio.”
Ludington said that could include assets in the grains and oilseed sector. The special crops assets could also start handling crops like wheat and canola.
“We think that if you can provide more services to that local producer you become more valuable to that producer,” he said.
