Share prices for two prairie grain handlers rose last week after a hostile takeover bid on Agricore United by Saskatchewan Wheat Pool.
Analysts say that’s because investors expect more activity, including the possibility of another company entering the fray.
Agricore United’s price shot up 25 percent the day after the pool announced an unsolicited bid. AU stock closed at $10.26 Nov. 8, while pool shares rose from $6.91 to $7.17.
Both companies trade on the
Toronto Stock Exchange.
By Nov. 13, almost a week after the Nov. 7 announcement, the price had settled a bit. AU shares closed at $10.19 and pool shares were down to $7.06.
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David Newman from National Bank Financial said he was surprised to see pool shares initially go up.
“That’s interesting because typically the acquirer actually loses share price,” he said.
Robert Beauregard of Natcan Investment Management attributed the higher pool shares to simply being in the news.
“Right now a lot of attention is brought to metals, uranium, income trusts,” he said. “Very little attention was paid to both (Sask Pool and Agricore). I think that news just brought those two names back in the forefront.”
Beauregard also said part of the Agricore price increase was the premium attached to the shares. Stock was trading below the 13 percent premium the pool was willing to pay, so the price shot up to reflect the offer.
“The market participants are probably expecting a higher price either by the pool or someone else,” said Beauregard.
Newman said there was little risk to the pool’s offer. It doesn’t cost the company anything.
He said the grain industry is facing a possibly deregulated environment without a Canadian Wheat Board export monopoly. He suggested the pool was pre-empting a potential move by a larger American company either to buy Agricore or itself.
“Politically there is more to this decision than meets the eye,” Newman said, adding that there could be a domino effect.
Illinois-based Archer Daniels Midland is already Agricore’s largest shareholder with 23.4 percent of limited voting shares.
If Agricore’s board of directors recommends that shareholders accept the pool’s proposal, ADM is required to vote or tender its shares in favour of it, Newman wrote in a research report. Its other option is to make a bid that is more favourable.
