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ADM IN THE DRIVERS SEAT

 

United Grain Growers (UGG), the right-wing farmers' co-op that turned itself into the first out-and-out capitalist 'co-operative' in Canada with the offering of shares on the public market in 1992, has just voted to become a subsidiary of Archer Daniels Midland (ADM).

This, of course, is not how UGG president & chairman Ted Allen puts it, but one should have no illusion about who is now in the driver's seat. ADM's revenues last year were $13.3 billion, yielding a profit of $696 million (even after paying more than $100 million in price-fixing fines), while UGG had sales of a paltry $1.9 billion and profits of $5.9 million (the company lost $7.4 million the year before, while ADM made $796 million). The control factor shifts even further when the UGG figures, which are in Canadian dollars, are reduced by approximately 35% to US equivalency.

A special meeting of shareholders was held on July 17 to vote on the proposal made by ADM to purchase 45% of UGG. UGG tried to exclude Manitoba Pool and Alberta Wheat Pool from being able to vote their shares (about 15% of the UGG) but failed to get the court injunction it was seeking. UGG claimed that the Pools had a vested interest in defeating the ADM move since they had themselves earlier this year tried to buy out UGG in what was described by UGG as a "hostile takeover bid".

When Saskatchewan Wheat Pool took the capitalist road (it started offering shares to the public in 1996, while also forming an alliance with Cargill to develop a grain export terminal in Vancouver)[see RH#133. #135], the Manitoba and Alberta Pool co-operatives recognized that they had a clear choice. Either they went down the same road, or they would have to build an alternative. Given the poor financial condition of UGG, the hard work of Cargill and its 'farmer' front groups to destroy the Canadian Wheat Board, and their own smaller size, it made sense for the Alberta and Manitoba co-ops to buy out UGG and create a prairie-wide alternative to both Cargill and the Saskatchewan Wheat Pool. Apparently UGG had a different vision: become "world class" by tying itself to a flaming star, not by serving prairie grain farmers. So UGG saw the Manitoba-Alberta move as hostile, and resorted to bizarre -- and successful ploys to defeat the Pools endeavour. Then, supposedly out of the blue, came the ADM bid, which was really the only road UGG president Ted Allen had left open to the company.

Leading up to the July 17th meeting, UGG engaged in a rather massive ad campaign touting the benefits of the "strategic alliance" with ADM. In the ad, which I first mistook for a news page (not by accident, I suspect), a smiling Ted Allen proclaims that, "A strategic alliance between UGG and ADM will open new markets, generate greater competition and ensure that the blue and white symbol of this proud Western Canadian institution will always be visible on the prairie landscape. The deal will make a very powerful business choice available to farmers, which has to be good." Allen has never explained, not surprisingly, why it has to be good, except that it clearly pleases his ego.

The official UGG press release reads:

WINNIPEG, MANITOBA, JULY 17, 1997, Canadian Corporate News:

Shareholders of United Grain Growers Limited today strongly approved the creation of a strategic alliance with Archer Daniels Midland Company that will make both companies stronger competitors in the global agri-business industry.

"This alliance can generate significant benefits and opportunities for our company's shareholders, customers and employees," said Ted Allen, Chairman and President of UGG. "Virtually all our shareholders recognized the long-term potential of the alliance. Most wanted to see us realize that potential. In fact, about 95 percent of the votes cast by our farmer shareholders, and virtually all Canadian institutional shareholders, supported the alliance. Others, principally some U.S.-based arbitrage firms [Oppenheimer, of New York] and our main competitors in Alberta and Manitoba [the Pools], had their own reasons to vote against the alliance."

In total, the alliance was supported by approximately 55 percent of the votes cast at the Special Meeting of Shareholders in Winnipeg... Alberta Wheat Pools and Manitoba Pool Elevators... voted against the alliance using the 15 percent interest they acquired in UGG before launching their hostile bid for the company in March. Excluding the Pools' votes, the alliance was approved by 68 percent of the shares represented at the meeting.

Through the three-part transaction, UGG will gain approximately $50 million in net new capital and ADM will have a significant equity [45%] interest in UGG...

"Through this relationship with ADM, we can make a greater contribution to the future of Western Canadian farmers. Our two companies share a common vision of the direction of the global agri-business industry and we have recognized that there is a natural strategic fit between our operations..." said Mr. Allen.

Allen also pointed out that of the 15-man board of directors, 12 will continue to be elected by UGG members and that ADM will appoint only two. But it is naive to ignore the power of ADM's buying policies and financial resources. The fractured voice of 12 'competitive' farmers will be no match for the single voice of the 2 ADM directors and their checkbook.

...................

In other words, ADM bought effective control of UGG for a mere $50 million, and UGG becomes a dependent of, and official sourcing agent for, ADM. We can only hope that UGG's original farmer-shareholders will actually see some benefit from all this, other than the doubtful pride they can take in fostering the growth and well-being of ADM and its consequent control over them and their commodity prices.

It must also be pointed out that ADM became the largest flour miller in Canada earlier this year after the Federal Competition Bureau decided that ADM could procede with its purchase of Maple Leaf Mills Inc. Before the deal, ADM, Maple Leaf Mills and Robin Hood Multi-Foods already controlled about 75% of the market in Canada for hard wheat flour. This makes ADM the largest wheat flour miller in North America, with 29 mills in the U.S. and 10 mills and two mix plants in Canada.

....................

ADM did not need to invest too much in writing the script for its move on UGG. It had already done a test run two months earlier, when it purchased a large minority share of a farmer-owned ethanol and fructose plant in Marshall, Minnesota, for $120 million. Minnesota Corn Processors (MCP) had lost $60 million last year, which some members of the co-op's 5500 members blame directly on competition from ADM, and was threatened with bankruptcy. UGG's PR team may have copied their press release from MCP's: "This agreement will allow MCP to remain an independent, grower-owned cooperative with complete control of its operations and sales and marketing functions."

The day before the UGG buy out was passed, ADM settled another one of the numerous price-fixing suits against it, this one over citric acid. Together with three other companies, ADM paid its share of an $86.2 million settlement. A fifth company, Cargill, has chosen to continue its fight against the suit. Cargill has steadfastly refused to admit any guilt in any of the price-fixing charges and suits, even though it is a major player in the all three of the commodities (lysine, citric acid and HFCS - all corn products) and has been named in all of them. [see RH #144]

All the while, ADM continues to expand. Earlier this year it purchased the cocoa operations of W.R. Grace & Co. for $470 million and assumption of debt. More recently it bought the cocoa-processing plants of ED&F Man Group for $108 in cash plus assumption of debt. ADM is now the world's largest cocoa processor, topping Callabaut- Berry in second place and Cargill in third (with less than half the capacity of ADM). The three now control about 50% of total world cocoa processing and while there may still be the facade of a futures market in cocoa, as one trader said, "the three giants in the industry buy and sell roughly at the same margins. Cocoa is dead as a tradeable commodity".

ADM has also expanded its role in Brazil and Paraguay with the purchase of grain and soybean facilities from Glencore Grain Holding of Switzerland, which had been a major supplier to ADM. The move provides ADM with greater control over a major source of soybeans for its European crushing plants.

(sources: Milling & Baking News, Globe & Mail, Manitoba Co-operator, Feedstuffs, Western Producer)

 

 

 

Copyright 1997. Ram's Horn


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