While Saskatchewan Wheat Pool’s financial restructuring was barely approved by the company’s Class A shareholders and continues to generate controversy among farmer members, it has received resounding approval from one interested group.
Investors have sent the price of Sask Pool shares soaring ever since the company’s board of directors approved the plan to convert the pool’s stock into a single class of publicly traded common ownership shares.
On Feb. 7, the day the directors met to approve the plan, the price of the pool’s class B shares that trade on the Toronto Stock Exchange was 34 cents.
Read Also
Ag in Motion speaker highlights need for biosecurity on cattle operations
Ag in Motion highlights need for biosecurity on cattle farms. Government of Saskatchewan provides checklist on what you can do to make your cattle operation more biosecure.
By Feb. 28, after three weeks of heavy trading, the price had reached a two-year high of 59 cents.
Over the next few days it settled back slightly, closing on March 4 at 54 cents.
In the seven days before the Feb. 7 announcement, an average of 342,000 pool shares a day changed hands. In the seven days after the announcement, the daily volume averaged 13.9 million shares.
The increase in the share price has boosted the quoted market value of the company (the share price multiplied by the number of outstanding shares) from about $82.6 million before the board’s approval of the plan to $131.1 million based on the March 4 closing price.
It’s a long way from the heady days of the late 1990s, when pool shares traded for more than $20, but market watchers say it reflects a newfound investor confidence in the beleaguered grain handling firm.
“The share price is going up because people recognize that the pool is doing the right thing,” said Greg Boland, a Toronto-based investment adviser.
The capital markets initiative will see a conversion to a single class of common voting shares, conversion of $173 million of convertible notes into shares, removal of the 10 percent cap on share ownership and a rights offering for $150 million of new equity.
The plan was narrowly approved by pool delegates representing Class A shareholders at a meeting Feb. 21. It must still be approved by Class B shareholders and convertible note holders at separate meetings March 23.
Boland said investors always worried about the pool’s ability to improve its financial health under the previous structure, given its inability to access equity markets in the same way as its competitors.
Those concerns are dealt with by the new ownership structure, combined with the infusion of new capital to pay down debt and improve the balance sheet, he said.
“It’s a real company now,” he said. “It wasn’t a real company before.”
David Newman of National Bank Financial said the price rise reflects investor approval of the new structure Ñ particularly the move to a single class of voting shares and the removal of the 10 percent cap Ñ as well as the fact that stock has been “relatively beat up in terms of its intrinsic value” in the last couple of years.
But he added that some of the new investor interest might reflect an expectation that something significant will happen in the future, like a merger, alliance or acquisition.
“A lot of the shareholders are strategic holders of the stock; in other words they want to have an event of some sort, a catalyst to improve their share price,” he said.
Boland said he’s not surprised the share price has climbed, but he is taken aback by how quickly it happened.
“I thought it would take a few months for people to digest, but I guess people have been anticipating this for a long time,” he said.
He expects the price to stay strong, suggesting that if there are good conditions this spring, it could move up by another 25 percent.
“I’d expect to see lots of buying in April, May and June as new people come to the market,” he said, adding that the removal of the cap will bring in institutional investors who have never looked at the pool.
While the plan still must be approved by Class B shareholders and note holders, both analysts say they see no chance of that approval being denied.
“The stock’s almost doubled. What shareholder would be stupid enough to vote this down?” said Boland.
