Back when he was a business student in Topeka, Kan., Mayo Schmidt must have missed the class on corporate-speak. He prefers plain English, bluntly spoken. On his first day as CEO of what was then called Saskatchewan Wheat Pool, the company's public relations staff handed him a set of talking points for use with staff and the media. He threw it away. It wasn't honest enough.
Soon after, he confronted the farmers who controlled the company since its inception in the 1920s. Some wanted to try to keep it intact. Others wanted to avoid laying off employees. Mr. Schmidt's response was, in essence: Are you kidding me? This is a crisis. We're broke. Then he sacked hundreds of people, sold historic assets, broke the farmers' grip, kept the company out of bankruptcy (barely), juggled the debt, bought its number one rival, and rebranded the whole thing with a silly (but less provincial) name. So how about global domination for an encore?
That Mr. Schmidt, a school teacher's son from rural Kansas who "grew up with a football in my hand," has big ambition was clear enough long before SaskPool - sorry, Viterra - made its $1.4-billion play for ABB Grain of Australia. The deal is ballsy, given the size (Viterra's market cap is only $2.6-billion) and the history. After all, the Regina company was a basket case when Mr. Schmidt took charge in 2000 precisely because of debts it ran up to feed its delusions of international success. So what's different this time? Everything.
The little turnaround on the prairie might be the least-known success story on Bay Street. That's starting to change now, and as Mr. Schmidt's profile grows, it turns out the American country boy could teach a few lessons to the city slickers grappling with their own debt nightmares.
Lesson one: When faced with a mountain of debt, there's no point in being sentimental, or holding out for the last dollar. Be quick and cold about selling assets. When Mr. Schmidt began to wrestle with SaskPool's long-term debt of more than $500-million, the board, then dominated by farmers, made it clear they were attached to the Western Producer farm newspaper they published and a livestock business the company had owned forever.
He dumped them both. How much healthier would CanWest Global be if the Asper family had acted similarly and sold their majority stake in an Australian TV network in 2007, as they'd planned to? Despite the temporary lifeline they got yesterday, their mistake has put their control of the business in jeopardy.
Lesson two: Get your money up front when you can. One Viterra shareholder, speaking anonymously, says the most annoying thing about the company is management's habit of issuing stock to finance deals. Even before it had sealed the ABB acquisition, Viterra had lined up $450-million in fresh equity for it. It's doling out more new shares to the Australians. But the result is that its debt has stayed manageable. When money is tight, the spoils go to the guy with the cleanest balance sheet.
Closely related is lesson three: When your fortunes are tied to a commodity, it's foolish to bet with debt, but doubly so if you're impatient. Viterra has been the dominant agri-corporation in Western Canada since it bought rival Agricore in 2007, so it was hardly a secret that Mr. Schmidt's next big deal was going to be outside of Canada. During last year's mania for agricultural stocks, it sold $440-million in new shares, loading up to buy something.
But did Mr. Schmidt use it during the bubble? Nope. He sat on the money and waited for ABB's stock price to get crushed. Teck Resources' Don Lindsay and a cast of a hundred acquisitive mining CEOs can only wish they'd been as good at ignoring the hype.
Whether Viterra's Australian play works out won't be known for years. It may turn out to be just another international misadventure.
Given the record, we'd be reluctant to bet against Mayo Schmidt. Honestly.
Derek DeCloet