The impending end of the Canadian Wheat Board monopoly has inflamed passions among Western Canadian farmers. It has also sparked an unusual and nasty takeover fight between two century-old Canadian agriculture firms.
The unlikely prize is an aging, tornado-damaged grain terminal in Goderich, Ont., on Lake Huron. It is owned by Thirdcoast Ltd., a 114-year-old public company with $26-million in 2011 sales and a share float so small (309,000 shares) that there are months when the stock, traded over the counter, doesn't change hands at all.
But the 144,000-tonne facility is highly profitable and of much interest to Thirdcoast's largest shareholder, Parrish & Heimbecker, a $2-billion, family-owned agrifood giant in Winnipeg.
The wheat board has had control of sales of Western Canadian wheat for decades, and through its system, P&H was guaranteed a steady supply of grain for its three Ontario flour mills. With the monopoly ending on Aug. 1, however, P&H must ensure it has enough stored up to feed those mills, particularly in winter, when the Great Lakes freeze over. Its existing storage facilities in Ontario aren't big enough.
"We looked around and said, 'How will we manage?' " said P&H chief financial officer Kevin Klippenstein. "Goderich was an obvious solution." So in February, P&H, which owns 27 per cent of Thirdcoast stock and has two Heimbecker family members on the board, told the other three directors of its plans to bid for the whole company.
That's when things got ugly.
Thirdcoast and its largest shareholder have traded accusations, and it has got personal. The board has split into two factions; each side claims the other has violated securities and corporate laws and is denying shareholders their due. The Ontario Securities Commission and Ontario Superior Court will hear the matters this week.
"Their behaviour doesn't make sense to me," said Mr. Klippenstein, speaking on behalf of directors Phil and Alan Heimbecker.
"I don't want to get into a pissing match in the media with P&H because I don't like playing their game," said Thirdcoast chairman Robert Paterson, representing the two independent directors who oppose the P&H bid.
It's a sign of more upheaval to come as the Canadian agriculture industry prepares for life after the wheat board. "It seems rational that [agriculture companies] might want to make some acquisitions they hadn't in the past to take advantage of this environment," said Al Mussell, a senior research associate with the George Morris Centre, an agriculture economics think tank in Guelph, Ont.
The Thirdcoast dispute goes back at least five years, when Mr. Klippenstein claims that Thirdcoast began restricting P&H's access to its Goderich facilities. P&H then said in 2010 it would build a new grain terminal in Hamilton.
That upset the independent directors, who believed it would compete with Goderich and that the Heimbecker cousins were in a conflict of interest. A dispute erupted over the 2010 annual report: the independent directors wanted the report to say the Hamilton terminal would hurt Thirdcoast's grain-handling business. The Heimbeckers protested, but the remarks made it in.
P&H told the board on Feb. 21, 2012 it would bid for the whole firm. A day later, when the Heimbeckers came for a scheduled board meeting, the other directors blocked them from entering and demanded their resignation. They refused, but the meeting began only after they left. Alan Heimbecker later e-mailed the three directors, saying their actions were "improper and illegal."
Things have deteriorated since then. One of the three independents quit and threw his support behind P&H. When P&H upped its original $115-per-share bid to $155 in late May – valuing the company at $48-million – Thirdcoast adopted a shareholder rights plan, which P&H is asking the OSC to rescind. P&H has publicly attacked executives for their "excessive" pay.
But the Winnipeg company's executives are most incensed by Thirdcoast's latest move: an attempt to sell the Goderich facility. P&H has asked the court to block what it calls an "improper defensive tactic," saying the terminal accounts for 60 per cent of operating earnings and any sale requires shareholder consent.
"[The proposed sale is] an attempt to frustrate ... shareholders' right to decide for themselves," P&H said in a court filing. P&H has even threatened to hold directors "personally responsible" if the sale proceeds, and to press Thirdcoast's insurers to deny them indemnification if it sues.
But Mr. Paterson, the Thirdcoast chairman, said it is all part of the negotiation. "We're just exploring all avenues to gain leverage to get the price up," he said. "The right number hasn't been uttered yet."
Whatever the outcome, it should be good for shareholders, who had already enjoyed a 363-per-cent return over the previous seven years, not including a bid that is about double where the stock was trading before. "Once somebody makes a move, there's no going back to being a tiny, over-the-counter-traded company," said Don Henry, Thirdcoast's chief executive officer.