Agricore United and James Richardson International Limited said Feb. 21 that they have agreed to combine to create Canada’s largest grain company and a leading global Canadian agri-business. AU shareholders will receive $6.50 in cash and 0.509 shares of the combined company for each limited voting common share. Holders of series A convertible preferred shares of AU will receive $24.00 in cash per share. The AU board will recommend that shareholders accept the JRI offer.
“This transaction delivers significantly greater value to Agricore United shareholders than the hostile takeover bid being put forward by Saskatchewan Wheat Pool,” said Jon Grant, chair of the board special committee reviewing the offer. “Not only does it provide significantly more cash, but the offer also poses a lot less risk. Both parties have mutually determined the synergies and efficiencies to be gained by the transaction, and we both have a thorough understanding of the business plan that will be adopted to achieve those synergies.”
SaskPool said it is currently assessing the proposed AU/JRI transaction. SaskPool President and CEO Mayo Schmidt said, “Our bid for Agricore United is still very much alive. Fundamentals of our proposal provide significant value to both Pool and Agricore shareholders. We are reviewing the information that was announced today and we are confident that a Pool proposal can provide more attractive value to AU shareholders.” SaskPool said it would provide additional information to the market once its assessment is complete. SaskPool currently has a grain handling joint venture with JRI at the Port of Vancouver.
AU says JRI contributes a number of complementary assets and skills to the new company. Its largest market for grain handling and storage is in Saskatchewan and provides a strategic fit for AU’s strong presence in Alberta and Manitoba, such that the geographic and operational diversification of the combined business should ensure it is not overly concentrated in any particular area. In addition, Canbra Foods Ltd, a subsidiary of JRI, is Canada’s largest fully integrated canola oil processor, with crush capacity of 420,000 mt and planned capacity of 1.2 million mt upon completion of a new canola crush plant in Yorkton, Sask.
All three major parties ?Çô AU, JRI, and SaskPool ?Çô are involved in the fertilizer retail business. JRI sells crop inputs at some 64 locations in Western Canada under its Pioneer subsidiary and four under the JRI name in Eastern Canada (two each in Ontario and Quebec). It also owns Green Valley, a blending and packaging facility in Abbotsford, B.C. Agricore sells crop inputs at 83 elevators and 106 stand-alone farm centers in Western Canada, with fiscal 2005 volume sales of 994,000 mt (GM Nov. 13, p. 9-10). SaskPool has 100 outlets with fiscal 2005 volume sales of 618,000 mt.
The new company will be called Richardson Agricore Ltd. The two parties say it will create:
- Canada’s largest grain company, with annual grain shipments in excess of 14 million tons and an established presence in 50 countries.
- A company with diversified earnings from grain handling, crop production services, livestock services, oilseed processing, and financial services.
- Combined assets strategically located throughout both western and eastern Canada, as well as in the United States and Japan.
- Significant synergies, currently estimated to be about $62 million per year. The synergies will come from realizing efficiencies in overlapping operations, applying best practices to the combined company’s operations, and reducing overhead costs. Expected net integration and one-time transaction costs are estimated to be about $31 million.
- A financially strong company, with pro forma gross sales of about $5 billion for the trailing twelve months ending January 31, 2007, and pro forma earnings before interest, taxes, depreciation, and amortization (“EBITDA”) of $226 million for the same period. Pro forma EBITDA including annualized adjustments and expected synergies is estimated to be $296 million. Pro forma net average debt of the combined company is about $700 million.
- A company with the size and financial strength to take advantage of significant growth opportunities.
As part of the transaction, James Richardson & Sons Limited (JRSL), the parent company of JRI, will contribute $125 million of cash, and Ontario Teachers’ Pension Plan (OTPP) will contribute $266 million of cash to fund the cash portion of the offer. On completion of the transaction, the total issued and outstanding shares of the combined company will be about 103.9 million, with JRSL and OTPP owning 50.5 percent and 20 percent, respectively. The existing holders of AU shares will own 29.5 percent in addition to receiving an aggregate of $391 million of cash.
The board of the new company will be comprised of 11 directors, to be elected by the shareholders. JRSL and OTPP have agreed to support the election to the board of certain individuals. It is expected that the initial board will include three nominee representatives of JRSL, two independent directors initially selected by OTPP and thereafter nominated by the independent nominating committee and approved by OTPP, two producer representatives, two additional directors nominated by JRSL who will be independent under applicable Canadian securities laws, one independent director nominated by consensus of JRSL and OTPP, and the CEO of the combined company. The board will be chaired by current JRI Chairman Hartley Richardson. In the interim, Curt Vossen will continue to act as JRI president, and Brian Hayward will continue to act as AU CEO; they will also co-chair a transition committee. Upon closing of the transaction, Vossen will assume the role of Richardson Agricore CEO.
Archer Daniels Midland Co., which owns 28 percent of AU, has agreed to vote for any merger approved by the AU board, unless prior to its expiration ADM makes its own proposal which is greater than the takeover bid.
The offer remains subject to certain conditions, including the tender of at least 75 percent of AU’s shares and the receipt of regulatory clearances. The deal also includes a termination fee payable to JRI of $24 million in certain circumstances, and a right on the part of JRSL and JRI to match a superior proposal. The transaction is expected to be completed in mid-2007.