Agricore and UGG announced yesterday that their boards of directors have unanimously agreed to a merger plan to create Agricore United, western Canada’s leading agri-business.
Combining the companies will generate significant benefits for farmer members and shareholders of both Agricore and UGG. By uniting, UGG and Agricore will be able to substantially reduce administrative and operating costs, build on each company’s strengths and maintain a strong presence in the face of increasing competition in the western Canadian agricultural industry.
“To continue to serve the needs of our members, Agricore recognized a need to partner with a company that has good end-use connections and the capacity to access additional capital,” says Neil Silver, President of Agricore. “We considered many options, however it soon became clear that our strategic goals would best be met by uniting with UGG.”
“This makes excellent business sense,” says Ted Allen, President and Chairman of UGG. “Each company brings a number of complementary strengths to the table. A combined company will be able to leverage those strengths to bring greater value to farmers and shareholders.”
For example, under the combined company, current farm customers of Agricore will be gaining access to UGG’s proven strengths in seed, livestock and linkages to end-use markets. Current customers of UGG will be able to draw on Agricore’s acknowledged strengths in special crops, farm inputs and west coast throughput capacity.
“In recent years, the entry of new players and the expansion of others has created a highly competitive environment,” says Silver. “This friendly merger will allow Agricore and UGG to take full advantage of our recent investments and remain a strong competitive force.”
“By teaming up, the new company will be able to use its combined asset base and human resources to best advantage,” says Allen. “This will lead to greater operational performance for the benefit of both farmers and shareholders.”
Agricore and UGG estimate that cost savings under the combined company will be in excess of $50 million annually.
Based on each company’s projected fiscal results for the year ending July 31, 2001, the two companies, if combined, would have Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA) of $145 million and cash flow (from continuing operations) of $90 million – driven from grain handling volumes of 12.5 million tonnes and farm supply sales of $775 million.
After evaluating several options, Agricore and UGG have agreed that the merger would be best structured using UGG’s existing shareholder structure. Under terms of the merger agreement, Agricore shareholders and members will have their equity in Agricore converted into shares of the merged company. Structuring the business combination in this way will provide Agricore members with immediate access to their equity if they so choose. The shares they receive in exchange for their equity in Agricore will be publicly traded.
Under terms of the merger agreement, members and shareholders of Agricore will be converting their equity into approximately 20.5 million shares in UGG. The total number of shares outstanding will rise to approximately 37.3 million shares. Based on UGG’s share price at the close on Friday, July 27, 2001, the market capitalization of the combined company would be about $450 million, making Agricore United a candidate for inclusion in the TSE 300 market index.
Archer Daniels Midland (ADM), which is currently a significant shareholder of UGG will see its ownership interest reduced to approximately 19% on the date of the share conversion. ADM will be able to exercise a pre-emptive right to acquire, within 20 business days of the effective date of the merger, additional shares up to a maximum of a 25% interest in the merged company. ADM has agreed to support the proposed merger.
Farmer-elected directors will maintain a strong presence on the board of directors of the new company. Twelve of the fifteen directors will be elected by farmer members, as is now the case under UGG’s system of governance. The remaining three non-member directors will be elected by shareholders. The initial board of directors will consist of six directors from Agricore, six directors from UGG and the three non-member directors now holding office with UGG. Two of the three non-member directors will continue to be nominated by ADM.
The boards of directors of both Agricore and UGG have agreed that in its grain operations, the combined company will carry on business under the name of Agricore United. In other areas, brand names that have the strongest recognition will be maintained.
The boards of Agricore and UGG have also agreed that, if the merger proceeds, Brian Hayward, CEO of UGG will be named CEO of the combined company. Gord Cummings, CEO of Agricore indicates he fully supports this merger and will be available to support Mr.Hayward on a requested basis to ensure the transition is smooth and the synergies are captured.
In addition to a review by the federal Competition Bureau and other regulatory approvals, the merger plan is subject to the approval of at least two-thirds of the votes cast by Agricore delegates and at least two-thirds of the votes cast by Class B and Class C shareholders of Agricore. Redemption of the Class A shares was approved by the Agricore board of directors on July 27. Agricore will be holding a special meeting of shareholders and delegates in Calgary on August 30, 2001 to consider the merger plan.
Agricore shareholders and members with equity in their accounts will be mailed their new share certificates approximately two weeks following the effective date of the merger. If all approvals are obtained, the merger transaction is expected to become effective on or about November 1, 2001. Details of the share conversion and merger transaction will be contained in an information circular to be mailed to Agricore members and shareholders on or about August 8th.
Agricore will be providing further details on the proposed business combination at delegate meetings to be held on July 31 in Brandon and Edmonton. The two companies will also be holding a series of joint country meetings starting August 7, to further discuss the proposal with farmer members and shareholders.
“The cost reductions we anticipate under the new company will improve our ability to compete more aggressively for farmers’ grain and crop input needs,” says Agricore President Neil Silver. “By uniting with UGG, we are determined to remain their agri-business of choice.”
“The companies share a rich prairie heritage that will be preserved under the new company,” says UGG President Ted Allen. “Together, we look forward to continuing our tradition of meeting farmers’ business needs.”
Agricore is a Canadian, farmer-owned agri-business that provides fully integrated grain marketing and handling services through its prairie-wide network of elevators and a full range of agronomic inputs, supplies and services through retail outlets across western Canada.
UGG is one of western Canada’s largest agribusiness firms. Founded in 1906, the Winnipeg-based company is diversified into grain merchandising, crop input sales and distribution, livestock production services, and farm business communications. UGG is publicly traded on the Toronto Stock Exchange under the symbol “UGG”.
This press release contains forward-looking statements that involve risks and uncertainties. These statements relate to the company’s future plans, objectives, expectations and intentions. These forward-looking statements reflect management’s current expectations and assumptions as to future events that may not prove to be accurate. Actual results are subject to a number of risks and uncertainties and could differ materially from those discussed in this press release. In light of the many risks and uncertainties surrounding our business and operations, you should keep in mind that the forward-looking statements described in this press release may not transpire. The company undertakes no obligation, and does not intend, to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.
Agricore Cooperative Ltd.
* Agricore was formed in 1998 by the merger of Alberta Wheat Pool and Manitoba Pool Elevators. AWP and MPE were farmer-owned co-operatives, originally founded in the 1920’s.
* Agricore is owned by approximately 84,000 members. As at July 31, 2000, share capital held by Class A, B and C preferred shareholders amounted to $52.0 million. A further $184.9 million in members’ equity (i.e. patronage dividends) was held by members in revolving and long-term equity accounts.
* Agricore provides fully integrated grain, oilseed and special crops marketing and handling services through a network of:
– 97 primary elevators throughout western Canada including 54 in Alberta, 2 in British Columbia, 2 (plus 4 joint ventures) in Saskatchewan, and 39 in Manitoba (plus 1 joint venture).
– bean processing plants in Carman, Manitoba; Ray, North Dakota; Taber, Alberta; Bow Island, Alberta; and a PeaCan processing plant in Camrose, Alberta.
– port terminal facilities at Thunder Bay (wholly-owned), Vancouver (including a half interest in Cascadia and a 70% interest in Pacific Elevators Limited) and a 30.1% interest in the Prince Rupert Grain terminal at Prince Rupert, B.C.
* Agricore retails a full range of agronomic inputs, supplies, and related services through 116 agro centres located across western Canada.
* Fully owned subsidiaries include XCAN Grain Pool Ltd., a Winnipeg-based exporter of canola, wheat, feed grain and special crops; and Demeter (1993) Inc., a Warner, Alberta-based exporter/processor of mustard seed.
* Other joint ventures or significant business relationships include Western Cooperative Fertilizers Ltd (66 2/3%), CanAmera Foods (16.6%), and Heartland Livestock Services (10.2%).
* Agricore has approximately 1800 full-time employees and 650 seasonal/casual employees.
* Agricore net earnings for the year ending July 31, 2000 were $1.3 million.
United Grain Growers Ltd.
* United Grain Growers (UGG) was founded in western Canada in 1906 as a farmer-owned co-operative.
* In 1992, UGG farmer members voted 95.3% in favour of transforming the company from a co-operative to a publicly traded company. UGG shares began trading publicly in July 1993. Shares are listed on the Toronto Stock Exchange and trade under the symbol “UGG”. As at June 30, 2001, the company had 16.8 million issued and outstanding common shares.
* UGG is diversified into four related business divisions:
Grain Handling and Merchandising – operates approximately 75 grain elevators throughout western Canada, including 18 high throughput facilities. The company also has 47 farm service centres and six special crop facilities. UGG also owns and operates two grain terminals at Thunder Bay, one in Vancouver and has a 14.8% interest in Prince Rupert Grain Ltd.
Crop Production Services – develops and markets grain and forage seed through Proven® Seed and provides seed, fertilizer and crop protection products throughout the company’s network of elevator facilities and farm service centres.
Livestock Services – formulates, manufactures and markets feed products throughout Western Canada through seven Unifeed outlets, Hart Feeds at Ste. Anne, Manitoba, and the former Pro Form Feeds in Chilliwack, B.C. Also markets advanced swine genetics through Unipork Genetics(TM) and has a 32% investment in The Puratone Corporation, a hog production company.
Farm Business Communications – publishes Grainews, Country Guide, Cattlemen, Canola Guide and other farm-oriented publications.
* UGG has entered into strategic business alliances or partnerships with Archer Daniels Midland (ADM), Marubeni Corporation, Swiss Re, Hewlett-Packard, BroadVision Inc., Pioneer Hi-Bred(TM), DeKalb Genetics and Australia’s Commonwealth Scientific and Industrial Research Organization (CSIRO).
* Earlier this year, the Company formed UGG Financial, a strategic initiative with Scotiabank, to offer expanded financial services to western Canadian farmers.
* UGG has approximately 1500 full-time employees and 400 seasonal/casual employees.
* UGG net earnings for the year ending July 31, 2000 were $2.2 million.
Agricore Cooperative Ltd. and United Grain Growers Limited
Statistical Information – Merger Proposal
(Estimates for the year ending July 31, 2001)
Agricore United Grain
Ltd. Limited Combined
Operating ($ millions):
Gross Revenue $3,100 $1,800 $4,900
Earnings before interest, taxes,
depreciation & amortization (EBITDA) $89 $57 $145
Cash flow (from continuing operations) $55 $35 $90
Financial ($ millions):
Working capital $60 $75 $135
Net capital assets $525 $295 $820
Total assets $1,240 $550 $1,790
Total net debt $610 $150 $760
Total Shareholders’ equity $330 $230 $560
Pro Forma Common Equity (millions):
Common shares outstanding 20.5 16.8 37.3
Market value of common equity
at $10 per share $205 $168 $373
Farm supply sales ($ million) $465 $310 $775
Country shipments (thousands
of tonnes) 7,500 4,900 12,400
Number of primary elevators 97 75 172
Primary elevator storage capacity
(thousands of tonnes) 1,160 700 1,860
Terminal elevator storage capacity
(thousands of tonnes) 649 424 1,073