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10 THE RURAL VOICE
Robert Mercer
Prairie Co-ops become capitalistic raiders
A $trjking example of the change
in agricultural politics and practices
is seen in the hostile takeover bid by
the Alberta and Manitoba Wheat
Pools of the
United Grain
Growers (UGG)
of Winnipeg.
This battle
for the future of
the prairie grain
business has
national
overtones as
farmers watch
their pools (a
fair resemblance
to UCO prior to
its U.S. buyout),
fight for control
of UGG so that
the previously
farmer -owned organization does not
fall into the hands of U.S. agri-food
conglomerates. The bid was brought
to a standstill March 18 when a
Manitoba judge ruled that the poison
pill to dilute the UGG shares could be
triggered by the hostile takeover bid.
The judgement in effect returned the
status to pre-bid activity as the Pools
dropped their offer. However as a
background to this move which may
not be over yet, here is the guts of the
battle.
The United Grain Growers went
public on the Toronto Stock
Exchange in 1992, the Saskatchewan
Wheat Pool went public in 1996.
Now the other two major prairie
farmer -owned co-operatives are
turning capitalistic by mounting a
hostile takeover bid for UGG. Co-
operation is now capitalization on the
prairies.
There's more than just the grain
business at stake. Prairie grain
farmers have been seeing their local
grain elevators vanish as multi-
nationals, as well as pools,
consolidate, centralize and become
single service centres for grain
handling, fertilizer, seed and
chemicals. The potential elimination
of one of the players, especially in
Alberta and Manitoba, will make
competitive buying or selling by
farmers that much more difficult.
Instead of hauling the harvest grain
20 miles for a competitive bid, it may
now be more like 100 miles for some
locations.
Although size can equate with cost
savings, it is doubtful if any of these
savings will be passed on to the
farmer customers as the two pools
making the $172 million offer will
have to finance that offer with debt.
Debt servicing costs will likely
absorb any cost savings and may
even eat into any patronage dividends
if the bid succeeds. In early March,
the Board of UGG recommended that
shareholders reject the takeover bid
of $13.75 per share that it considered
inadequate, unfair and coercive.
In the background to this prairie
play of the year is the changing role
of the Canadian Wheat Board which
is seeing its influence in the export
market diminished and at the same
time there is the growing strength of
Cargill and ConAgra on the
landscape. And since the removal of
the Crow rate transportation subsidy,
the position of the Manitoba Co-op
has weakened as it is the furthest
from the west coast ports that ship to
the expanding Asian markets.
In a recent study by the Dominion
Bond Rating Service that looked at
the five major players in the grain
market — Alberta, Saskatchewan and
Manitoba Pools, UGG and Cargill —
who all have publicly traded debt, it
noted that there were too many
players for optimum results.
This story is a long way from
being settled even after the poison
which will make the takeover less
attractive, complaints to the
Securities Commissions, and
circulars to the farmer members
and/or stockholders. If successful the
two prairie pools would form a third
company to manage UGG assets. If
the current bid remains unsuccessful
then watch for a second or rival bid to
appear, possibly from a U.S.
corporate interest.
The assimilation of UGG into the
new Pool structure would give both