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AGRICORE UNITED

As the solutions to UGG's top risks started to pay financial dividends and improve its balance sheet, the management team began to apply enterprise-wide thinking to other areas that had been identified and to factor this competitive strength into its growth strategies. One of these was a merger with Agricore Cooperative, a rival grain processor whose predecessor companies had, three years previously, attempted a hostile takeover of UGG.[1]

UGG's integrated risk-financing program proved a valuable tool during the merger negotiations: The potential to expand the program to the enlarged company was perceived by Agricore Cooperative's board of directors and members as a means of providing greater stability and security to the organization.

In practical terms, though, UGG Financial was a more powerfully persuasive factor in the merger: Lacking UGG's access to the capital markets, Agricore Cooperative had become substantially overleveraged in the race to build high-throughput elevators and expand its crop inputs business in line with its competitors; consequently, the prospect of being able to roll up Agricore Cooperative's receivables into UGG Financial was a very significant advantage for a combined company – removing, as it did, the need for some $300 million in financing from the combined company's balance sheet (compared to the amount previously financed directly by Agricore Cooperative).[2]

HARVESTING VALUE

Every publicly traded company is for sale, and the price is visible to everyone in the form of the stock price. While AU would have preferred to stay independent, the company received a buyout offer from the Saskatchewan Wheat Pool (SWP) that, under Canadian law, could not be ignored even though the initial offer was considered by management to be woefully inadequate. The AU CEO and the board of directors, given their governance responsibilities, thought the offer could be substantially improved or even countered by another suitor – one prepared to put a more realistic value on AU. The CEO believed there were three possible options that could create additional stakeholder value:

1. AU could make its own offer to buy out SWP.

2. AU could seek a white knight to counter the SWP offer, effectively creating an auction that would produce the highest bid (i.e., provide the greatest possible increase in shareholder value).

3. Archer Daniels Midland (ADM) was a strategic partner and significant stakeholder in AU that had aided UGG in its defense of the hostile takeover attempt by Agricore Cooperative's predecessor companies. ADM could be offered a proposal to increase its ownership position.

The CEO and the board of directors decided upon a strategy to pursue the first two options, which also offered the greatest flexibility to ADM.

As is usual in hostile takeovers, a team of advisers and investment bankers was hired by AU to analyze the company's financial position and prospects and determine a fair value. At the same time, AU made a buyout offer to SWP that was rejected. After the evaluation was completed, it confirmed that AU was worth considerably more than the share-swap deal offered by SWP. The AU board of directors, which included representatives from ADM, rejected the buyout offer. One of the AU board members then made an overture to Richardson International, Canada's next largest agribusiness, to determine its interest in acquiring AU. Richardson International offered a friendly all-cash offer higher than the offer from SWP. Not to be thwarted in its takeover attempt, SWP countered with a higher all-cash offer. This had the effect of creating an auction process where the price for the AU stock reached a level prompting ADM to make a strategic decision. ADM could increase its holdings in AU and assume control or could sell them at a substantial profit to shareholders, knowing that AU was going to be sold to either SWP or Richardson International. Finally, the highest bid was an all-cash offer from SWP.[1]

After the buyout was complete in 2007, SWP changed the name of the combined company to Viterra, Inc., and continued to operate until being acquired by Glencore International on January 1, 2013.[4]

  • [1] Interview with Brian Hayward.
  • [2] Interview with Peter Cox.
  • [3] Interview with Brian Hayward.
  • [4] Various announcements in financial media.
 
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