Agricore expects to answer SaskPool this week, SaskPool cuts 1Q seasonal loss; fertilizer off

Agricore United Ltd., Winnipeg, expects to have a recommendation for its shareholders the week of Dec. 11-15 in Saskatchewan Wheat Pool Inc.’s hostile takeover attempt. The AU board will meet Dec. 14; however, an official response may come beforehand.

Sources say, however, that the ultimate decision may come from Decatur, Ill., where Archer Daniels Midland may be making its decision on the deal, as ADM owns 23.4 percent of AU, which is expected to go to 28 percent in January once ADM exercises debentures.

In order for SaskPool to be successful, it must buy up 75 percent of AU shares. To do so it must gain ADM’s approval, and sources say ADM must be willing to sell off its stake. The question is whether ADM will agree to the current offer, seek to extract more dollars from SaskPool, or make its own offer, or whether another large grain player will intervene with its own offer.

SaskPool noted that its offer constituted a 13 percent premium over AU stock prices on the Toronto Stock Exchange Nov. 7, (C$8.24) the date prior to the offer. However, sources note that trading on the TSE for AU stock has now exceeded that 13 percent level. SaskPool says its offer for AU’s Series A Preferred Shares was 45 percent over the last closing price Nov. 3, and its debenture offer was 5 percent over the last trading. Projections of the cost of the offer are almost $900 million.

SaskPool says a merger can maximize synergies to the tune of $60 million per year. The company expects those will be divided equally between grain handling, agri-products, and corporate.

According to SaskPool, its officers met with those of AU in October 2005 regarding a potential merger, but AU officials sought a two-year confidentiality agreement. SaskPool waited a year, and then again related its interest in October 2006. It said the AU response this time was that the proposal would be reviewed at a Dec. 14 board meeting. This was not a hasty enough review for SaskPool, so it made its offer public Nov. 7 (GM Dec. 4, p. 1, Nov. 27, p. 1, Nov. 13, p. 9).

SaskPool President and CEO Mayo Schmidt said in an earnings call Dec. 7 that he has received positive feedback from shareholders of both SaskPool and AU regarding the merger. SaskPool said some AU shareholders have tendered their shares in response to the offer, though it would not say how many. SaskPool acknowledged a likelihood that the Canadian Competition Board might require remedies should the two companies merge. However, it declined to offer any potential requests that the board might make.

An AU spokesman last week told Green Markets that the company has very manageable debt of $443 million, noting that it has been paying it down from $600 million since the 2001 merger that created the company. SaskPool debt is put at only $33 million by comparison. AU has more employees ?Çô 2,800 versus SaskPool’s 1,600 ?Çô with AU noting that much of SaskPool’s business is in Saskatchewan and AU’s in Alberta and Manitoba.

Results for year ending July 31, 2006

In other news, SaskPool cut its seasonal net loss for the first quarter by 33 percent, to $5.1 million ($.06 per share) on sales of $341.3 million for the quarter ending Oct. 31, 2006, versus the year-ago $7.7 million ($.09 per share) and $274 million, respectively. It was its second year in a row of first quarter improvement. While SaskPool’s fiscal year actually ends July 31, it noted that on a 12-month basis ending Oct. 31 it has net earnings (excluding one-time items) of $19.3 million, 77 percent ahead of the prior year period of $10.9 million.

Losses were actually higher in the Agri-Products segment, which saw an EBITDA loss of $5.1 million on a 10.3 percent drop in sales to $48.9 million, compared to the year-ago loss of $4.8 million and sales of $54.5 million. On average, 62 percent of the segments sales occur in the fourth quarter. In the first quarter, the Pool’s retail operations lost $6.7 million in EBITDA, versus the year-ago $5.3 million. Stronger collections of outstanding agri-product credit accounts helped offset margin pressures created by lower fertilizer sales volumes and lower supplier rebates. Sales through the Pool’s retail operations were off 16.1 percent, mainly because of lower fertilizer and equipment sales, partially offset by higher crop production sales.

Fertilizer sales were actually off 12.7 percent, to $33.2 million from the year-ago $38.1 million. Hurricane Katrina spurred buyers last year to buy more fertilizer as they saw prices going up, according to the Pool. Such was not the case this year, as fertilizer prices are lower due to lower natural gas prices.

Crop production sales were up 10 percent. An early harvest allowed for strong post-harvest applications. In addition, a glyphosate shortage led to stronger sales of higher-margin products.