A defeated merger doesn’t discount future joint ventures

ff_admin
Farm Forum

Merger discussions, even those that don’t get completed, could mean the possibility for joint ventures down the road, according to a business law instructor at Northern State University.

North Central Farmers Elevator and Wheat Growers proposed a merger to their members earlier this year. If approved, the two companies would have become CentraGro.

A majority of members from both organizations had to approve the merger. In a June 19 vote, 61 percent of Wheat Growers members approved the vote, but only 49 percent of North Central members supported the measure.

Following the vote, both cooperatives issued identical statements expressing disappointment that the merger was not approved and the intention to move forward as separate entities.

Julie Johnson, a business law instructor at NSU, said before merger discussions take place, confidentiality agreements are typically signed to protect the companies in case the merger doesn’t happen, but the fact that the merger wasn’t approved doesn’t discount the possibility of future ventures.

“You may find them collectively going after something,” she said.

Officials from both cooperatives declined to comment on this story, but in the months leading up to the merger vote, cooperative officials did talk about why the merger was proposed and if it would come up for consideration again.

At a public meeting in June, Wheat Growers CEO Dale Locken said the merger was proposed so both companies could stay competitive.

“Both cooperatives need to be more competitive going forward,” Locken said. “CentraGro is going to allow for that to happen. We want to make sure that we’re in a position to compete for your grain in our trade area. We have an opportunity to take the best policies and programs from each co-op, meld them together and have a stronger organization.”

Projected savings with the merger was estimated at $44 million in the first four years because the larger cooperatives would be able to take advantage of better prices for fertilizer, seed and chemicals.

“This is about securing the future for both co-ops for generations to come,” said North Central General Manager Mike Nickolas. “CentraGro would be positioned to be relevant for a long time to come. The marketplace is changing rapidly and there are a lot of things, really big things, that will happen in the next couple years.”

At least one co-op member asked if the cooperatives had explored joint ventures while staying separate entities. Locken said joint ventures have been explored, but lacked traction.

Johnson said merger discussions aren’t unique, but it’s not every day that two local cooperatives consider a union and the elements of the merger, including the anticipated savings, out in the open.

“A lot of them don’t happen in this public of a fashion,” she said. “This was probably more transparent than the average merger.”

Johnson said one of the more unique aspects of the proposed CentraGro merger is the fact that there was membership overlap between North Central and Wheat Growers.

Wheat Growers has about 5,500 members and North Central has about 2,500, but the combined cooperative would have been less because some are members of both cooperatives.

“Rarely in the corporate world would you have a lot of cross membership,” she said.

A defeated merger proposal isn’t the end.

“It doesn’t lock them out of doing business together,” Johnson said. “There’s all kinds of different ways they can do business together.”

Johnson said it took “monumental thinking” to propose the merger and she gives both cooperatives credit for putting the idea out there.

“Had they gone together, they would have been stronger,” she said. “They’re still strong independently.”

Following the vote, one thing was fairly certain, however. Nickolas said the merger proposal was a one-time event and he doubted it would come back to the membership in the near future.

Follow @ElisaSand_aan on Twitter.