Canada’s newest and biggest grain company has come into the world in a fighting mood.
Agricore United has been ordered by the federal competition bureau to sell one of its three grain terminals at Vancouver.
But the company and the bureau can’t agree on exactly what should be sold, and the dispute is going before the Competition Tribunal, an independent quasi-judicial body, for a decision.
“We all agree they have to sell something,” said Gaston Jorré, the bureau’s senior deputy commissioner of competition.
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“There is a disagreement on how much they need to sell.”
He added he couldn’t predict how long it might take the tribunal to hear the case and issue a decision.
The newly created grain company, which formally came into being Nov. 1, was created by the merger of Agricore and United Grain Growers.
It has an ownership stake in three of Vancouver’s five grain terminals: a 50 percent share in the 282,830-tonne Cascadia Terminal; 70 percent of the 199,150-tonne Pacific Elevators facility, and 100 percent of the 102,700-tonne UGG
terminal.
The new company will have a 51 percent ownership stake in terminals that account for 63 percent of total grain handling capacity at the port.
That prompted a number of grain industry groups, including the Canadian Wheat Board, to express concerns about the potential effect on prices and service.
After spending several months studying the issue, the bureau concluded that such concentration of ownership would result in a “substantial lessening” of competition.
“The merged entities would have much too much control if they were allowed to proceed without any action being taken,” Jorré said.
The bureau wants Agricore United to sell either the UGG terminal or its stake in Pacific. The company has offered to sell a portion of the Pacific terminal.
Jorré said the company’s proposal wouldn’t resolve the bureau’s concerns about its potential stranglehold on grain handling at the port.
“We believe that in order to remedy this problem, they have to sell a terminal,” he said.
Brian Hayward, chief executive officer of Agricore United, said the company will divest some of its terminal assets, but declined to make further comment.
When the merger plans were announced, the two companies said one of the biggest benefits would be the “synergies” that could be realized by combining terminals at Vancouver.
But Hayward said being forced to sell one of the terminals doesn’t affect the economics of the merger.
“Clearly there is some effect,” he said. “But does it change the business case? The answer is no, it still makes a lot of business sense.”
Jorré said the bureau is confident that buyers would be interested in either terminal.
However, some industry observers said no buyer leaps to mind, especially given the economic woes facing many grain companies.
Suggestions include a big multinational firm like Louis Dreyfus or a consortium of smaller Canadian grain dealers.
“Given the fact they have to sell it, that’s certainly going to affect the price,” said industry analyst David Schroeder of Dominion Bond Rating Service.
Saskatchewan Wheat Pool chief executive officer Mayo Schmidt declined comment on whether the pool would have the interest or ability to increase its 30 percent stake in Pacific.
He said any buyer of Pacific would be bound by contractual agreements governing the terminal’s operation.
“It would be important for any group to have a discussion with us as to how it would affect us before they do anything,” he said.
Adrian Measner, the wheat board’s executive vice-president of marketing, welcomed the news that one of the terminals will be sold.
“Hopefully it goes to a new, independent party that would increase competition there,” he said.
National Farmers Union executive secretary Darrin Qualman said the decision doesn’t go far enough.
“It ignores the fact that as a result of this merger, 75 percent of the western Canadian market is controlled by three companies – Archer Daniels Midland, Saskatchewan Wheat Pool and Cargill,” he said.
ADM owns 19 percent of Agricore United.
The two sides were able to negotiate agreements on all the other issues of concern to the bureau.
The company agreed to sell several primary elevators to deal with competition concerns in the country: UGG elevators at Dutton Siding near Dauphin, Man., Gaudin, Alta., and Killam, Alta.; and Agricore elevators at Westlock, Alta., and Bawlf, Alta.
It must also sell either the Agricore elevator at Rycroft, Alta., or two UGG elevators at Rycroft and Falher.
