Archer Daniels Midland is officially in, and the prairie pools are officially out.
And the new-look United Grain Growers Ltd., flush with cash from its strategic alliance with ADM, is ready to start spending.
“We anticipate that we’re going to have a record capital program this fiscal year,” said chief executive officer Brian Hayward.
He declined to say exactly how much the company plans to spend on capital projects in 1997-98, but the old record is $43.9 million in 1995. Last year, the company reported $21.9 million in capital spending.
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That comes as no surprise to grain industry analyst David Schroeder of Dominion Bond Rating Service, who said the financial strength of ADM should give UGG confidence to continue rationalizing and investing in its grain handling infrastructure.
“I expect them to be spending lots on capital expenditures in the near term, rationalizing their elevators and building new high throughput facilities,” he said.
The deal that brought ADM into the fold as the largest single stakeholder in UGG gave the Winnipeg-based grain company $50 million in new capital.
But UGG president Ted Allen said that cash infusion and this year’s record capital program don’t mean the company is about to go on a wild spending spree.
“One thing about capital spending is you have to do a lot of planning in advance,” he said. “We’re not about to sacrifice good planning on the altar of spending.”
Meanwhile, the saga over the future of UGG, a story that transfixed the grain industry throughout 1997, finally came to an end late last month.
On Sept. 23 the company announced it would buy 6,554,278 shares from shareholders at a price of $16 a share, representing 59.7 percent of the shares offered for sale under the so-called issuer bid.
That was the final step in a complex series of financial transactions that left ADM, which had earlier bought 4.8 million shares at the same price, with a 45 percent ownership stake in the company.
Shares sold
Shortly after that, Manitoba Pool Elevators and Alberta Wheat Pool, who had sold the maximum number of shares allowed to the $16 issuer bid, sold the rest of the 1.88 million shares they had purchased last winter during an unsuccessful bid to take over UGG.
MPE chief executive officer Greg Arason declined to say at what price the pools sold their remaining UGG shares.
ADM officials are already making their presence felt within UGG. Two representatives from ADM attended their first UGG board meeting in September, and the newly formed grain operations committee, made up of two officials from ADM and two from UGG, has held its first quarterly meeting to discuss business strategies.
David Schroeder, a grain business analyst with Dominion Bond Rating Service in Toronto, agrees with company officials and many outside analysts that there won’t be any noticeable short-term change in UGG’s business operations, but said the alliance with ADM will definitely make UGG a stronger competitor in the prairie grain business.
“The deal with ADM was something of a lifeline for UGG,” he said. But over the long term it provides the company with excellent access to U.S. markets, which will become increasingly important as north-south trade becomes more and more important.
