West Central Ag patrons weigh $200 million CHS offer and $250 million Arthur Companies offer
ULEN, Minn. — The farmer-owners of West Central Ag Services in western Minnesota will decide on Thursday, Nov. 7, whether to merge with CHS Inc., the largest farmer-owned agricultural cooperative in the U.S. But in the midst of the merger conversation, Arthur Companies also has let members know it is interested in buying the cooperative, too.
CHS has offered a $200 million deal to take over West Central Ag Services. Patrons will vote on the proposal on Thursday. But James Burgum, CEO of Arthur Companies, said his company has been interested in purchasing West Central for $250 million since the spring. The company took its proposal straight to West Central Ag Services members on Monday, letting them know about its alternative option.
West Central Ag Services, based in Ulen, Minnesota, with additional locations in Ada, Beltrami, Felton, Foxhome, Lake Park, Mahnomen, Park Rapids and Perley, offers crop nutrients, seed, crop protection products, producer financing, crop insurance, grain marketing, and tires and repair. CHS, based in Inver Grove Heights, Minnesota, is the largest farmer-owned agricultural cooperative in the U.S. and is diversified into energy and lubricants — with the Cenex brand — animal nutrition, oilseed products and agronomy services and products.
West Central Ag Services and CHS announced a merger agreement in May , on which patrons will vote on Thursday at 8 a.m. in Ulen. According to merger documents, the base cash price offered to the patrons is $200 million.
West Central Ag Services and CHS already have worked together in a joint venture based in Hannaford, North Dakota, called Central Plains Ag Services , which formed in 2009. The cooperative has locations in the North Dakota towns of Aneta, Cooperstown, Courtenay, Luverne and McVille, along with a fertilizer hub and a 2.8-million-bushel shuttle loading facility in Hannaford.
When the West Central-CHS merger proposal was announced in May, representatives of both cooperatives released statements about their longstanding relationships, strengths and similarities. CEO Jesse McCollum on Tuesday said changes to West Central are about building better connections throughout the supply chain. CHS's global connections "connect a lot of boxes," he said.
"This isn't about today," he said. "This is about 10 years from now."
McCollum said the other advantage to CHS is that it would keep the business in a cooperative system.
"That's the business we live in — makes a lot of sense for our growers," he said.
But not everyone agrees that joining CHS is the right move.
Farmers in West Central Ag Services who get a vote on the merger have been discussing the matter online for weeks, asking questions of each other about what might change if CHS takes over. Some have pointed out that the merger disclosures list millions of dollars in bonuses for McCollum and CFO Blain Christianson. However, McCollum clarified that the documents list just the disclosure of bonuses from West Central, not something in relation to the proposed merger.
"That doesn't influence who we sell to," he said. "That's not part of the negotiation with CHS."
Other concerns online about the merger have included loss of local control and less competition.
Burgum said Arthur Companies believe a new bid it presented on Monday presents "a stronger alternative for growers" that he wants West Central members to see.
"We feel like we would be a very good fit," he said.
Arthur Companies was founded in 1906 and operates grain and agronomy businesses in North Dakota and Idaho and also operates fertilizer, wheat and "proprietary trading businesses," according to its website. It also is partnered with food and ingredients business Anchor Ingredients. Burgum said Arthur Companies offers many of the same services and access to markets as West Central Ag Services. He said since Arthur Companies is a family-owned and operated company and not a cooperative, it does not pay out patronage. However, he believes being a privately owned business makes Arthur Companies work harder to be competitive for customers.
The company on Monday sent out messages to West Central members and put up a website, arthuradvantage.com , with details about the offer.
"We just want to make sure everyone is fully informed going in to cast that vote," Burgum said.
Burgum explained that Arthur Companies had heard earlier this year that West Central Ag Services might be looking to sell and submitted an unsolicited proposal to purchase the cooperative.
McCollum said West Central Ag Services Board President Duane Brendemuhl informed Burgum that the cooperative was declining the Arthur Companies proposal. Burgum said he was informed that the cooperative planned to sign with a third party.
"Through that process, we were informed that we were outbid by CHS, that (they) had a stronger proposal," Burgum said.
McCollum said Arthur Companies did not counter its initial offer.
"We heard nothing from them until early yesterday morning," McCollum said on Tuesday.
"I thought we had been outbid," Burgum said.
However, Burgum said Arthur Companies officials only last week had a chance to review the CHS proposal and realized that the Arthur Companies' bid had been competitive. According to Arthur Companies, the new proposal it submitted on Monday was the same in value as its offer in April. However, its structure was adjusted to address member concerns about tax implications. McCollum said West Central is considering the new offer.
"Right now we are assessing that offer and deciding what that really means," he said.
The Thursday vote is still on, though, and if voters approve the merger with CHS, it will go through, he confirmed.
The arthuradvantage.com website contains a letter from Burgum that explains some background on Arthur Companies and its interest in purchasing West Central. Burgum offered to talk personally to interested farmers about the proposal.
"Even though we provided a superior proposal, we could not get an audience with the board or management," Burgum wrote in the letter. "It's clear management had a strong incentive to support the alternative proposal rather than entertain additional interest. The purpose of our outreach is not to debate the merits of the proposed merger with CHS. Rather we want to make all the facts available prior to the vote and ensure members are aware that management did not engage with qualified third parties looking to provide competitive alternatives."
