They may have dropped their bid to buy United Grain Growers, but two prairie pools still want to know whether the takeover would have been approved by the federal government.
Alberta Wheat Pool and Manitoba Pool Elevators have asked the federal competition bureau to continue its review of the proposed buyout.
Manitoba Pool president Charlie Swanson said the pools want to know whether there is any point in continuing to look for ways to expand operations across the Prairies.
“We need some kind of direction from the competition bureau as to whether in fact there are opportunities or not, UGG set aside,” said Swanson.
Read Also
Going beyond “Resistant” on crop seed labels
Variety resistance is getting more specific on crop disease pathogens, but that information must be conveyed in a way that actually helps producers make rotation decisions.
While the bureau’s review would focus specifically on the pool’s proposal to buy UGG, its decision on that could probably be applied to other potential projects, he said.
Meanwhile, the two pools and UGG both got some good news last week from the Dominion Bond Rating Service, which had put the three companies on a credit watch Feb. 20 after the takeover bid was announced.
The bond rater says all three have been confirmed as “stable” and will retain their pre-takeover bid ratings.
For long-term financing, both UGG and MPE are rated BB (high) while AWP is BBB (low). Saskatchewan Wheat Pool is BBB (high). For short-term commercial paper, UGG and MPE are R2 (low) and Alberta Pool is R2 (middle). Sask Pool is R1 (high).
David Schroeder, an analyst who follows the grain industry for Dominion, said his company will watch the three companies closely in coming months to see what actions they take to improve their financial status.
While the UGG takeover would have put a lot of short-term pressure on the two pools because of the increased debt load, it would have helped ensure their market position in the long term.
Things to consider
With that option apparently gone, and with deregulation continuing and the possibility of increased competition from U.S.-based multinationals like ConAgra, there are lots of questions to be answered.
“They are small operators with limited access to capital,” said Schroeder. “They face a lot of challenges that put their future in doubt.”
As for UGG, he expects the company to focus on getting its financial and operational house in order, with its priority being debt reduction. UGG’s long-term debt stood at just over $100 million on Jan. 31.
“Their interest costs are so high it’s really hurting the bottom line,” he said.
UGG last week announced plans to build a $9.5 million high-throughput grain handling facility east of Calgary, opening in the summer of 1998. It will have 32,000-tonne storage capacity and be able to load 112 rail cars in 24 hours. It will be UGG’s 12th such facility and brings the company’s infrastructure investment to $138 million since 1993.
