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Agricore and United Grain Growers Ltd. are merging to form Agricore United, a western Canadian agribusiness with an estimated market capitalization of $450-million.

Stockholders in Agricore - formed in the 1998 merger of farmer-owned co-operatives Alberta Wheat Pool and Manitoba Pool Elevators- will own 20.5 million of the 37.3 million shares in the combined company under the plan announced Monday.

Agricore and UGG said they expect expense savings of more than $50-million a year as a result of the merger.

"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," the companies said in a joint news release.

The merger will combine UGG's strength in seed, livestock and links to end-use markets with Agricore's strength in specialty crops, farm inputs and West Coast terminal capacity.

Based on each side's projected financial results, the combined entity would have operating earnings of $145-million for the year ending Tuesday, resulting from grain-handling volume of 12.5 million tonnes and farm supply sales of $775-million, the companies said.

The merger will be based on the existing shareholder structure of UGG, which is listed on the Toronto Stock Exchange. Agricore members and shareholders will have their equity converted into stock in the merged company.

American agribusiness giant Archer Daniels Midland, a major shareholder in UGG, will own 19 per cent of Agricore United, with the right to raise its holding to a maximum of 25 per cent within 20 days of the deal's completion. ADM is supporting the proposed merger.

Brian Hayward, chief executive officer of UGG, is to be CEO of Agricore United.

Twelve of the combined company's 15 directors will be elected by farmer members, as is the case in UGG. Two of the three non-member directors will be nominated by ADM.

In grain operations, the combined company will conduct business as Agricore United; in other areas, it will use brand names deemed to have the strongest recognition.

"The companies share a rich Prairie heritage that will be preserved under the new company," stated UGG president Ted Allen.

"Together, we look forward to continuing our tradition of meeting farmers' business needs."

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