Andersons won’t take buyout bid

$1 billion offer undervalues firm, exec says

The Andersons grain silo is situated in Maumee. Weak corn harvests dragged on its grain division last year.

THE BLADE/JETTA FRASER
Buy This Image

The Andersons grain silo is situated in Maumee. Weak corn harvests dragged on its grain division last year.

The Andersons Inc. rebuffed an unsolicited $1 billion buyout bid on Wednesday, potentially setting the stage for a protracted showdown between the Maumee-based agribusiness and a high-profile Wall Street swashbuckler known for betting big.

The offer from HC2 Holdings Inc. became public only because the New York company released a letter expressing frustration that The Andersons’ leadership wasn’t taking its offer seriously and accusing the company’s leaders of poor management.

“If this is the first shot being fired, it seems unlikely we’ll have a happy handshake across the negotiating table between these two sides,” said Geoffrey Rapp, University of Toledo law professor who specializes in corporate law.

By going public and appealing to shareholders, HC2 is attempting to up pressure on The Andersons board, which HC2 said had not adequately considered the offer.

Mike Anderson called the offer an “opportunistic attempt to acquire the company at a low point in the industry cycle.”

In a statement, the company’s Chairman Mike Anderson said its board had conducted a thorough review of the offers — to the contrary of HC2’s claims — and determined they were not credible and significantly understated the company’s value.

In a statement, Mr. Anderson called the offer an “opportunistic attempt to acquire the company at a low point in the industry cycle.”

HC2 made an offer of $35 a share in January and of $37 a share in March, and it made the latter public this week, valuing the deal at $1.043 billion, plus assumption of Andersons debt.

Mr. Anderson said the board and management team are confident the company can stay independent while creating long-term value for shareholders.

Though Andersons officials declined an interview on Wednesday, the company provided a strong rebuttal to one of the charges HC2 leveled as an example of mismanagement.

In its letter, the New York holding company said The Andersons’ new headquarters in Monclova Township had a bloated, $100 million budget. Andersons spokesman Debra Crow told The Blade that figure is “grossly exaggerated” and revealed for the first time the price on the new offices.

“Scheduled to be completed in September, the new building brings all of the company’s administration under one roof and also provides significant flexibility to meet the needs of our growing company,” she said. “This building represents a $54 million investment in our company’s future and our home region.”

The Andersons has more than 1,200 employees in the Toledo area and 2,460 companywide. The headquarters is expected to house about 450 of those employees.

HC2’s next move is unclear. The company declined to make executives available for an interview Wednesday and didn’t issue any statements.

However, Wall Street analysts said Tuesday they expect HC2 to sweeten the pot.

“It is our view that the $37 offer is an opening shot and that HC2 is likely willing to increase its offer price. The fact that other companies, such as Canada-based Richardsons [International], have expressed an interest in [The Andersons] gives us further confidence that the offer price will likely move higher,” BB&T analyst Heather Jones wrote in a note to investors.

Ms. Jones said BB&T believes the company’s valuation is closer to $50 a share. The Andersons stock closed at $25.94 a share on Tuesday, before the HC2 offer became public, and closed at $32.07 on Wednesday, well below its $70 peak in 2014 and in the middle of its trading range for the past year.

Once a privately held family company, The Andersons has been publicly traded since 1996. As such, the board has a legal obligation to act in the best interest of its shareholders and must disclose certain significant events.

However, experts said company boards have wide discretion on those issues and don’t have to present every acquisition offer to shareholders.

“If you disclose offers that are unlikely to ever materialize, you may mislead shareholders into being too optimistic,” Mr. Rapp said. “But on the other hand, if you never disclose offers you may be leaving important information out of shareholders’ consumption.”

Mr. Rapp is the Harold A. Anderson Professor of Law and Values at UT, though he said the endowment does not hold any shares of Andersons stock.

Led by one-time hedge fund manager Philip Falcone, HC2 has been courting The Andersons for months.

Though the company had only about $138 million in cash at the end of the first quarter this year, officials said Tuesday they have arranged for up to $680 million of debt financing and an additional $60 million revolving credit facility from Cerberus Business Finance LLC. The company most recently reported total assets of about $2.8 billion.

In January, HC2 presented a proposal to acquire The Andersons for $35 per share. On March 22, HC2 bumped the offer up to $37 a share. At the time, that represented a 21 percent premium over where the company’s shares were trading. By Tuesday, with The Anderson’s stock price continuing to tumble, the offer represented a 43 percent premium.

The Andersons stock had tumbled 60 percent over the last 18 months. Low oil prices have hurt The Andersons’ ethanol business, while weaker corn harvests dragged on the company’s grain division last year. The company reported a $13 million loss in 2015 — its first since becoming a publicly traded firm.

And while company officials and some analysts believe The Andersons has substantial upside, not everyone is convinced.

In a note to investors Wednesday, Stifel analyst Paul Massoud said the offer from HC2 appeared to be attractive.

“We do expect Andersons will see improved earnings in grain and PNG [plant nutrient group] as early as this year, but we remain concerned about the direction of earnings in rail and ethanol,” he said. “While this is likely only the opening bid in what may be a long, protracted process, we think current ANDE shareholders should give serious consideration to the offer given the recent share price performance.”

Mr. Massoud noted Andersons is down 45 percent over the last year while the Standard & Poor’s 500 index is down 4 percent.

Though it appears the founding family, as well as the board and management, would prefer that the company remain independent, they likely wouldn’t have the votes to block a deal that was broadly supported by shareholders.

Immediate family members and Chief Executive Officer Patrick Bowe control just under 5 percent of the company’s stock, according to recent filings with the U.S. Securities and Exchange Commission.

Meanwhile, 74 percent of outstanding shares are by institutional and mutual fund owners. Additionally, The Andersons does not have a so-called ‘‘poison pill’’ provision to help fight off unwanted acquisitions.

HC2 does hold Andersons stock, but it owns less than 5 percent of outstanding shares, an HC2 official said.

HC2’s Mr. Falcone has a clouded past, published reports indicate. The former head of hedge fund Harbinger Capital Partners, which was involved in betting against subprime mortgages, got into regulatory trouble, and the Wall Street Journal said he was banned him from running a hedge fund.

His buyout offer is an attempt to capitalize on a downturn in the agricultural economy. Grain companies, including larger rivals Archer Daniels Midland Co., have suffered as the global glut has hurt U.S. exports and encouraged farmers to keep their harvests in storage, rather than selling them to merchants, according to Reuters news service.

The value of such strategic assets should increase when overseas demand for U.S. crops recovers.

Deutsche Bank is acting as a financial adviser for Andersons, and Kirkland & Ellis is acting as a legal adviser. Credit Suisse is HC2's financial adviser and Jefferies is its legal adviser.

Business writer Jon Chavez contributed to this report.

Contact Tyrel Linkhorn at tlinkhorn@theblade.com or 419-724-6134.