Sunday, March 11, 2012

Viterra: the next takeover target

An unidentified third party has expressed interest in a takeover of Viterra, Canada’s largest grain handling company.

MARCH 9, 2012

Here we go again. Having witnessed the hostile takeover battle for Potash Corp. of Saskatchewan in late 2010, Saskatchewan is once again witnessing the potential takeover of its largest company.Viterra Inc. confirmed Friday that it had received “expressions of interest from third parties.” In other words, a takeover bid, presumably hostile.And quite likely, although not certainly, from a foreign company, since Viterra is the largest agriculture company in Canada, with annual sales of $8.25 billion in 2010. The financial press is speculating that Canadian fertilizer company Agrium could be a bidder, but more likely U.S. agricultural giants, Cargill, Bunge or Archer Daniels Midland.

Why all the sudden interest in Viterra? First of all, Viterra is an attractive takeover target, based on price alone. As GSU general secretary Hugh Wagner said the other day when the company’s shares were trading around $10, that’s a pretty good price for a company with about 45 per cent of the Canadian grains and oilseeds market.

But the real reason Viterra is a target now is the impending demise of the Canadian Wheat Board’s monopoly on sales of western wheat and barley on Aug. 1. Companies like ADM, Cargill and Bunge weren’t really interested in Canada as long as the CWB had the monopoly on wheat and barley export sales in Western Canada.

But with the impending demise of the CWB’s single desk, that $5 billion to $6 billion market is up for grabs, Ironically, Viterra assumed it would be the big beneficiary of the dismantling of the single desk. Viterra CEO Mayo Schmidt calculated that the additional market share would add another $40 million to $50 million to Viterra’s operating earnings by 2014.

But market analysts speculated that Viterra itself could become a takeover target with the end of the CWB monopoly. Liberal MP Ralph Goodale warned the Conservatives last fall that their headlong rush to destroy the Canadian Wheat Board could have some unintended consequences in the form of takeovers of Canadian grain companies, such as Viterra.

Of course, Agriculture Minister Gerry Ritz pooh-poohed such talk, saying Canadian companies would be doing the buying.

While that may be the case, it looks as though Viterra could be the first victim of the Tories’ ill-conceived plan to give western farmers “marketing freedom.” Marketing freedom apparently also means giving U.S. companies the right to buy up Canadian grain companies, like Viterra.

So are we going to see a repeat of the battle to save the PotashCorp from a foreign takeover? One could argue that Viterra — being the largest grainhandling company in the country — is a strategic asset that is in the “national interest’’ to protect from foreign ownership. If potash is “strategic,’’ then what about wheat, barley and other grains and oilseeds?

By the way, what have the Tories done to further define and clarify “the national interest” with respect to foreign takeovers of Canadian companies as they promised to do 15 months ago after rejecting BHP Billiton’s $38-billion takeover bid for PotashCorp?

The short answer is: absolutely nothing. The concept of ‘national interest’ is just as vague and amorphous as it was when then-industry minister Tony Clement unexpectedly decided to reject the BHP bid.

What does this mean to Schmidt’s plans to transform Viterra from a ‘Canadian champion’ to a multinational agricultural powerhouse, comparable to the aforementioned Cargill, ADM and Bunge? It’s far too early to say.

One thing I’ve learned in covering the business beat over the last several decades is to never underestimate Mayo Schmidt. The former ConAgra Canada executive took over the floundering Saskatchewan Wheat Pool in 2000 and pulled it back from the brink of bankruptcy in 2003. Having rescued the Pool from drowning in red ink, Schmidt turned it into the largest Canadian grain handling company after successfully mounting the hostile takeover of Agricore United for $1.8 billion in 2007. He burnished his reputation for strategic corporate planning and execution by acquiring ABB Grain in 2009 for $1.4 billion.

Has Schmidt met his match? Has the acquisitor become the acquired?

Don’t worry about Mayo Schmidt, he’ll be fine.

It’s the potential loss of the Saskatchewan’s largest company that I’m worried about.

Johnstone is the Leader-Post’s financial editor

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