Sticking With Viterra Despite Debt 

Focus: GLOBAL

Benj Gallander Image Benj Gallander President, Contra the Heard

Canada's acquisitive agribusiness may have bitten off more than it can chew, but sellers should get better opportunities, write Benj Gallander and Ben Stadelmann in Contra the Heard.

Viterra (TSX: VT) can be considered as the house that Schmidt built. This ambitious CEO has always been forthright about his vision of expanding the company into a global player, even when it was formerly known as Saskatchewan Wheat Pool. With his focus firmly on the next ten years, Mr. Schmidt is banking on the demand for commodities to increase by 20%.

Having barely evaded bankruptcy less than five years ago, it seems almost cavalier the way history is being ignored. The current blockbuster acquisition of ABB Grain, the former Australian Barley Board, will add a lot of new debt to an already large figure. The silo was previously crammed with the takeover of Agricore United. Associated Proteins was bought this summer for roughly $64 million and was part of the reason why Viterra raised another $300 million from an offering of five-year notes at an 8.5% coupon rate—relatively rich considering we’re in a low-interest environment. Shareholders had already been diluted to the tune of $450 million in a new stock offering at $8 per share. One hopes that we can make it past the first frost without another of Mayo’s corporate actions.

Certainly, these transactions have the potential to be advantageous, if the company doesn’t drown in the debt first. The Associated Proteins deal strengthened Viterra’s position as the Canadian leader in canola exporting.