STAFF – United Grain Growers Ltd. is going to the stock market to raise $22 million.
The company announced last week that it had entered into an agreement with a syndicate of underwriters to sell two million common shares at a price of $11 per share. The shares will go on sale to the public later this month.
UGG’s chief executive officer Brian Hayward said the decision to go to the market for new funds is part of the company’s strategy of modernizing and investing in new infrastructure.
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“We will be paying bank debt down in the short run, but once we get projects on the go and approved we will be investing in new plant and equipment,” he said.
In making the announcement Oct. 30, UGG said it had also granted to the underwriters a 48-hour option to purchase another 500,000 shares. However that was discontinued and the issue held at two million.
This is the third time UGG has raised money through a new share issue since going public in 1993. A 1993 issue at $8 a share and a 1994 issue at $9 raised a total of $34 million.
Hayward said he expects the issue to be well received.
“It would appear to be the right time for the company and obviously the market is receptive,” he said. UGG shares have been trading around $11 in recent weeks, closing at $10.95 on Nov. 4. In the past 52 weeks the stock has ranged from $6.50 to $12.50.
Strong interest
Fred Ketchen, director of equity trading for ScotiaMcLeod Inc. Canada, the lead underwriter, said he thinks there is considerable interest in UGG, based on a generally positive view of the agriculture and food industry.
“I think the outlook for UGG continues to be rather optimistic,” he said, citing three major factors:
- Increasing world population, continuing loss of cultivated land and increasing demand for meat and grain from growing economies around the world means the food industry in general, and grain in particular, are well-placed to prosper.
- Ongoing reductions in government subsidies and deregulation of the grain handling and transportation system are also seen as positives by the market.
- UGG has become an “extremely well managed company” since going public three years ago.
Also, there is strong demand from individuals, mutual funds and pension fund managers for new equity investment opportunities in general.
“We just don’t have enough product at the present time to satisfy the growing need for equities in Canada,” he said. “These kind of things are usually welcomed by a wide variety of investors.”
Ketchen said he doesn’t expect the new issue will produce an immediate increase in the price of UGG stock, although the value should continue to appreciate as long as conditions in the industry remain the same.
