A home-grown high tech agricultural company is about to fall into American hands.
Philom Bios, a Saskatoon inoculant manufacturer that has been in business since 1980, has signed a letter of intent to amalgamate with its main competitor MicroBio RhizoGen Corp., or MBR.
Also based in Saskatoon, MBR is owned by MicroBio Corp. of the United Kingdom, which in turn is owned by Becker Underwood of Ames, Iowa.
While the deal is being described as an amalgamation, Philom Bios officials acknowledge the company is being bought by its U.S. suitor.
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“The end result is the same, in that Becker Underwood will own 100 percent of the shares of the company,” said Philom Bios president John Cross.
If the deal is approved by Philom Bios shareholders, Becker Underwood will buy all 3.53 million outstanding shares in Philom Bios for $5.25 per share, which will cost approximately $18.5 million. The deal is to be completed before Dec. 31.
Becker Underwood chief executive officer Roger Underwood said that while the new owners may be American, the new company’s headquarters and production centre will remain in Saskatoon.
“We are committed to continue investment and growth in Saskatoon,” he said.
“Saskatoon truly is the leading production centre for inoculants in the globe.”
Philom Bios and MBR are the two major players in the western Canadian inoculant business, together controlling about 70 percent of the market.
Philom Bios employs about 50 people in research, manufacturing, marketing and management. Its products include JumpStart, TagTeam and N-Prove.
Some farm groups and economists have expressed concerns that rolling the two companies into one will mean reduced competition, resulting in less research and development, fewer products to choose from, reduced service and higher prices.
But Underwood said farmers needn’t worry about the impact of the takeover on the availability or price of products and services.
“In fact, farmers will get more value and more opportunity because of the efficiencies that are always gained when you amalgamate two companies,” he said.
There are still “plenty of competitors” selling nitrogen inoculants, he added. Producers will still be able to make choices based on quality and value, and all of the brands now sold by the two companies will remain on the market.
Cross, who had expressed serious concerns about competition issues when the hostile takeover bid was under way earlier this year, said those concerns have been allayed after several months of discussions with Becker Underwood.
“The fact our brands and products will still be there for our customers next year and beyond gave us a lot of comfort,” he said.
“There will be two totally different product lines out there.”
But at the end of the day, Cross said, the Philom Bios board of directors has a duty to do what’s in the best interest of its shareholders, not necessarily its customers.
“The board judges that this offer is a fair value offer to the shareholders, and don’t forget the shareholders own the company,” he said.
Many of the proposed amalgamation’s details have yet to be worked out, including such things as the make-up of the management team and the name of the new company.
The deal must also be approved by Philom Bios shareholders at a special meeting later this fall. If at least two-thirds of the voted shares are in favour, then all shares must be sold to Becker Underwood for $5.25.
Both sides say they don’t foresee problems arising that could scuttle the deal.
The Oct. 9 announcement came six months after Becker Underwood launched a hostile takeover bid, offering to buy all Philom Bios shares for $2.75 per share. Philom Bios’ board of directors rejected that offer, saying the shares were worth between $5 and $6.36.
Becker Underwood then extended its offer until May 14, saying it was prepared to offer $5 per share under an amalgamation plan, pending the result of a due diligence review of Philom Bios’ books.
Underwood said last week the original offer of $2.75 was based on Philom Bios 2000 financial results. The new higher offer reflects 2001 financial results, which included a 32 percent increase in revenue and a doubling of cash operating earnings.
MBR, founded in 1987, exports rhizobium from its Saskatoon production plant to about 25 countries, while Philom Bios has focused its marketing efforts on Western Canada.
Underwood said the new company will be able to make use of Philom Bios technology to expand its export business, while continuing to serve western Canadian farmers.
Cross, who helped found the company in 1980, said he doesn’t know whether he will remain with the firm after the new owners take over.
