In a meeting room in a Winnipeg hotel at the corner of Portage and Main, the fate of Canada’s oldest grain company was to be determined this week.
Shareholders of United Grain Growers Ltd. were to decide July 17 whether to throw in their lot with the giant U.S. multinational Archer Daniels Midland in a deal that would see ADM take a 45 percent ownership stake in UGG.
If they turn down the deal, that could open the door for other bidders to make a play for the 91-year-old company, including the two prairie pools whose takeover bid failed earlier this year.
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The proposed alliance with ADM has the backing of UGG’s directors and management, who vigorously opposed the buy-out attempt by Alberta Wheat Pool and Manitoba Pool Elevators.
“The right decision for this company is to approve the strategic alliance with ADM,” UGG president Ted Allen said in an interview last week.
The deal would see ADM invest $113 million in UGG and end up with 45 percent of the outstanding common shares. UGG would get $50 million in new capital, with $63 million going to shareholders. UGG would supply grains and oilseeds to ADM’s network of processing plants.
But even if shareholders reject the deal, said Allen, that won’t be the end of the world for UGG.
“The changes that we’ve made in this company over the last number of years still position it well for the future,” he said.
Despite the backing of management, approval of the ADM deal is not a sure thing.
Market analysts say some shareholders may not like the deal because having a large minority shareholder can discount a company’s stock price, by eliminating the prospect of future takeover bids and reducing the number of shares on the market.
Shareholders will also be voting on a series of resolutions presented by Oppenheimer and Co. Ltd., a New York-based financial company that owns 13.2 percent of UGG’s stock, that could directly affect the proposed ADM deal.
Oppenheimer wants shareholders to vote on the shareholders rights plan, which includes the poison pill that put an end to the takeover bid by the two pools.
Another resolution would limit the number of common shares to those outstanding on April 9, 1997. The ADM deal calls for new shares to be issued to the U.S.-based multinational.
Eric Rosenfeld, managing director of Oppenheimer, didn’t want to speculate on the outcome of the meeting, but said his company has been speaking with other shareholders about the vote.
“We’re quite satisfied with the response we’ve been getting,” he said.
Allen also declined to predict what shareholders will decide to do, saying he had no idea how many shareholders will attend, how many individual farmer shareholders might show, or what the tone of the meeting will be.
“I really don’t know what to expect,” he said. “I haven’t gone through very many of these.”
Alberta Wheat Pool president Alex Graham said even if farmers show up to debate the fate of their company, it will be irrelevant to the outcome.
“The reality is that no matter what they say, as long as the financial institutions vote their shares, all the farmers’ discussion in the world won’t change anything,” he said.
The two pools remain the largest single shareholder in UGG with 14.98 percent of the company’s common stock. UGG had asked the federal competition bureau to bar the pools from voting at the July 17 meeting, but as of July 14 no such order had been issued.
Pools reject offer
Graham said the pools are not interested in selling into the ADM bid, which would pay $16 a share for 30 percent of the outstanding shares (the pools’ offer had been $13.75 for all outstanding shares.)
If the ADM deal is successful, the pools must decide whether to tender their shares. If the deal is rejected, the pools will assess all of their options, said Graham.
Asked if the pools are still interested in buying UGG, he said: “We were interested in it when we made our initial offering. We still have an interest in how we deal with the future. None of those things have changed and therefore there is an interest in the company.”
