Agricore seeks Richardson merger as alternative to S.W.P. takeover

by Josh Sosland
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WINNIPEG, MAN. — Seeking to fend off a hostile bid by Saskatchewan Wheat Pool Inc., Agricore United and James Richardson International Ltd. have agreed to a merger that would create Canada’s largest grain company.

Under the proposal, Agricore shareholders would receive C$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 Agricore would receive C$24 per share in cash.

The business combination has been approved by the Agricore board.

"The combined company, Richardson Agricore Limited, will be a true Canadian champion, with a broad mix of businesses across Canada and the scale, management expertise and financial strength to compete globally," said Hartley Richardson, J.R.I. chairman. "The combined company will be well-positioned to create significant value for its shareholders and connect its customers to even greater market opportunities than we can today. It will carry on the Richardson family’s commitment to being a trusted partner to Canada’s farming communities. It will also have a governance structure that ensures the direct and ongoing input of producers."

According to the companies, the merged business would ship more than 14 million tonnes of grain per year and would have a presence in 50 countries. Richardson Agricore was described as "a company with diversified earnings from grain handling, crop production services, livestock services, oilseed processing and financial services," the companies said.

Synergies created by the merger were estimated at $62 million per year, reflecting overlapping operations, the application of best practices and reduction of overhead. In the 12 months ended Jan. 31, the companies combined pro forma EBIDTA was C$226 million.

As part of the transaction, James Richardson & Sons Ltd., the parent company of J.R.I., would contribute C$125 million of cash for a 50.5% share of Richardson Agricore. Agricore shareholders would own 29.5% of the company, in addition to receiving C$391 in cash. The remaining ownership would be purchased for C$266 million by the Ontario Teachers’ Pension Plan.

"We are delighted to be involved in the creation of Richardson Agricore," said Brian Gibson, senior vice-president, public equities for the pension plan. "We believe the combined company will be well positioned to create long-term value, especially with the input of producers."

If the transaction is completed, the board of directors of Richardson Agricore would be chaired by Mr. Richardson and Curt Vossen, president of J.R.I., would be chief executive officer. The 11 members of the board of directors would be elected by shareholders of the new business, but J.R. Richardson Ltd. and the O.T.P.P. have agreed to support the election of certain individuals.

It is expected that the initial board will include three nominee representatives of J.R.S.L., two independent directors initially selected by O.T.P.P., two producer representatives, two additional directors nominated by J.R.S.L. who will qualify as independent directors, one independent director named by consensus of J.R.S.L. and O.T.P.P. and the c.e.o.

The transaction is expected to be completed in mid-2007.

The proposed merger comes in the midst of a lengthy hostile takeover effort under which S.W.P. has sought to acquire Agricore.

Responding to the merger proposal, Mayo Schmidt, president and c.e.o. of S.W.P., 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 (Agricore) shareholders."

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