ADM's powerful hand may steer SaskPool's bid for rival Agricore
Agricore stock price jumps 25 per cent
RICHARD BLACKWELL
One of the world's largest agribusiness conglomerates could end up in the driver's seat in Saskatchewan Wheat Pool Inc.'s takeover bid for rival grain marketer Agricore United Ltd., an offer that pushed the target company's stock up almost 25 per cent yesterday.
Archer-Daniels-Midland Co., the global food giant based in Decatur, Ill., that counts former prime minster Brian Mulroney as one of its directors, owns about 24 per cent of Agricore stock, and its holding would rise to 28 per cent if it converts its debentures.
Agricore United's governing rules say 75 per cent of its shareholders must approve the kind of transaction proposed by SaskPool. However, the rules also say ADM must vote or tender its shares to an offer that has been accepted by Agricore's board, unless ADM itself makes a better offer.
ADM, with annual revenue of $37-billion (U.S.), is a powerhouse in agriculture, food processing and, increasingly, energy production through ethanol and biodiesel.
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ADM executives could not be reached for comment on the proposed deal yesterday, but SaskPool chief executive officer Mayo Schmidt said in an interview that the U.S. company "will certainly have a meaningful role in all of this."
He said he has not yet talked to ADM, but he thinks "they'll review the merits of the transaction and see it positively."
Investors certainly saw the deal in a positive light yesterday, pushing Agricore stock past the value offered by SaskPool in its bid, suggesting stockholders expect a higher price will eventually be paid for the grain handler.
Agricore stock rose almost 25 per cent, or $2.02 (Canadian), to close at $10.26 on the Toronto Stock Exchange. SaskPool shares ended the day up 3.8 per cent to $7.17.
In its proposed offer, SaskPool said it will issue 1.35 of its shares for each Agricore share, a value of $9.68 -- 6 per cent below yesterday's close.
"[Investors think] there might be a better offer, whether it's from a competing firm or from SaskPool," said one analyst, who didn't want to be identified. "There are other grain companies with significant operations in Canada that could be bidders as well."
Cherilyn Radbourne, an analyst at Scotia Capital, said in a report yesterday that the SaskPool offer "significantly undervalues" Agricore. SaskPool could pay almost $15 a share "and the deal would still be accretive to [SaskPool] shareholders," she wrote.
She noted, however, that any merger between the two companies will raise regulatory concerns, because the combined entity would have a market share of more than 45 per cent of grain marketing in Manitoba, Saskatchewan and Alberta. On top of that, it would control about 71 per cent of the storage capacity at the port of Vancouver.
Mr. Schmidt said yesterday that SaskPool has filed its offer with the federal competition bureau, and he hopes to hear back within a few weeks.
The competition issue also concerns some farm organizations on the prairies. "It's not good news for farmers because it means more concentration of ownership in the grain-handling business," said Terry Pugh, executive secretary of the National Farmers Union.
The situation at the ports is particularly crucial, he said. "If this goes into effect, there really won't be much competition on the West Coast at all."
Mr. Pugh said it is odd that SaskPool is characterizing the takeover proposal as a way to create a strong Canadian agribusiness player that will be able to compete with U.S. multinationals such as Cargill Ltd., Bunge Corp. and Louis Dreyfus Corp.
"It's a little ironic because Agricore United is really a subsidiary of Archer-Daniels-Midland, and ADM has total control of the situation," he said.
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