The Alberta and Manitoba wheat pools are again looking to buy another grain company, but this time they are going after smaller game and getting a better reception.
In 1997 they were foiled in an attempt to buy United Grain Growers, but last week, the two pools made a friendly takeover bid for Humboldt Flour Mills Inc., a special crop marketer and farm supply company headquartered in Humboldt, Sask.
The pools have offered 85 cents a share for the company. Shares had recently traded at 75 cents.
The offer is contingent on getting two-thirds of all outstanding shares. That would cost the pools about $7.85 million. All the shares would cost about $11.8 million
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In 1997, HFM had gross sales of more than $75 million and assets of $36 million, according to a company news release.
The presidents of the two pools say their reason for interest in Humboldt Flour is the same one that drove them to bid on UGG.
“We have talked about, for a significant time period, the need for the two pools to expand and grow our geographic base to serve customers and grow our businesses across Western Canada,” said Alberta Pool president Alex Graham.
Manitoba pool president Charlie Swanson agreed.
“As people have said, there aren’t any borders any more. This offered an opportunity to expand our ag sales base as well as our special crops base and work with a well-established company,” he said from Winnipeg.
Brad Munro, president of Humboldt Flour Mills, said the deal developed after the company hired Ernst and Young earlier this year to scout for possible business partnerships.
“It came out of a strategic look at ourselves and how we continue to grow. To continue to grow you need capital and you need expertise. We have a strong group of guys, but as you grow you need a lot of money and this gives the company the opportunity,” he said of the pools’ offer.
The company considered raising money through a share offering and other options, but the pools’ offer seemed the best idea, he said.
“There are certain times when it is more difficult to raise money for certain industries,” he said.
The HFM board of directors has voted to recommend the pools’ offer to shareholders. The largest shareholder, Working Ventures Canadian Fund Inc., a labor sponsored venture capital fund, has committed to sell its 49.6 percent interest to the pools.
Graham said Humboldt’s strength in drawing special crops, especially mustard seed, fits nicely with the pools’ interest in Xcan Grain, the international special crops marketer, and other pool operations.
“Alberta Pool has been extremely successful in the mustard business and we will continue to grow that business … . We are also doing a lot of research in the area of pea and pea processing.”
Swanson said if the deal is completed, Humboldt Flour will continue to operate as a separate company for the immediate future. If the pools get all the shares, it would still operate as a separate, jointly held company.
Neither pool president wanted to describe the deal as an incursion into Saskatchewan Wheat Pool territory.
Graham said that for Sask Pool “this replaces one competitor with another.” The three pools continue to work together in a wide range of operations, he said.
Swanson said Sask Pool wasn’t invited to participate.
“The Saskatchewan Wheat Pool is probably represented in a number of those locations and it would end up being a duplication for them,” he said.
Humboldt Flour Mills was formed 42 years ago by Wilf Chamney. The company went public on the Alberta Stock Exchange in 1993 and a few years later Working Ventures purchased Chamney’s shares.
After that, the company embarked on rapid expansion, buying farm service companies. It now has 12 outlets in Saskatchewan.
The company also has a small certified organic flour mill in Humboldt.
HFM’s 1997 annual report says income before interest and income taxes was $2.58 million in 1997, up 24 percent over 1996.
Income from continuing operations after taxes and interest payments was $568,164, up one percent over 1996. But there was a loss of $564,292 associated from discontinued operations, bringing the net income total to $3,872 compared to $562,481 last year.
The discontinued operations were three agricultural supply dealerships under franchise with Imperial Oil Ltd. They were part of HFM’s purchase of Inter-West Ag Service Centres Ltd. The operations were sold to Imperial Oil.
