OMAHA, NE – Farm Credit Services of America (FCSAmerica) today announced the termination of the merger agreement between FCSAmerica and Rabobank. The merger agreement was announced July 30, 2004 and contemplated that FCSAmerica would be acquired by Rabobank. FCSAmerica also announced its rejection of a merger proposal from AgStar Financial Services.
The Farm Credit Administration (FCA), which regulates FCSAmerica and other Farm Credit System members, has been notified of the decision to terminate the Rabobank transaction process.
With assets of more than $8 billion as of September 30, 2004, FCSAmerica is one of the largest agricultural lenders serving Iowa, Nebraska, South Dakota and Wyoming.
The board of directors of FCSAmerica considered a variety of factors and determined that it was in the best interests of FCSAmerica and its stockholders to terminate the merger agreement. These factors included, among others, the increasing likelihood that approval for the transaction would be delayed and the risks faced by FCSAmerica by such delay; unprecedented activities of third parties during the “quiet period” of the regulatory process; a clarification in regulatory position that affects FCSAmerica’s allowance for loan losses; and changes in funding practices by AgriBank, FCB following the acquisition announcement. AgriBank, FCB is the funding source for FCSAmerica.
The FCSAmerica board of directors considered Rabobank’s offer to increase the purchase price to $750 million. Rabobank required that the purchase price increase be allocated equally among all FCSAmerica stockholders, rather than on a patronage-based formula consistent with cooperative principles and the Company’s bylaws. The allocation method proposed by Rabobank would have had caused a significant number of stockholders to receive more cash in the transaction if they exercised dissenters rights under the Farm Credit Act regulations rather than vote in favor of the transaction.
FCSAmerica also noted that significant public commentary about the merits of the transaction often lacked perspective because it occurred before FCSAmerica could release the FCA approved stockholder Information Statement.
“We understand the need for a quiet period preventing stockholder communication until the Information Statement is sent, and we followed the rules,” says Bob Slaughter, an Osage, Iowa farmer and vice-chair of the FCSAmerica board. “Unfortunately, the same rules didn’t apply to other members of the Farm Credit System, who were free to comment on the transaction based on their interests.”
Paul Folkerts, a Davenport, Nebraska, farmer and chairman of the FSCAmerica board, says he is disappointed with the outcome of the acquisition process but is ready to move forward. “The proposed transaction would have provided a great opportunity to serve the needs of farmers and ranchers who work every day in an ever-changing agricultural world,” Folkerts says. “Nevertheless, the board of directors concluded that it was not in the best interests of FCSAmerica to move forward with the transaction.”
FCSAmerica Board Rejects AgStar Proposal
Separately, FCSAmerica’s board unanimously rejected the merger proposal submitted by AgStar Financial Services, ACA, a Farm Credit association based in Mankato, Minnesota. According to Folkerts, the FCSAmerica board of directors concluded that the proposed AgStar merger was not in the best interests of FCSAmerica stockholders for reasons including the following:
- The proposed merger would have reduced the combined entities’ capital position dramatically and would have added significant preferred stock issued to other Farm Credit entities. The preferred stock had many debt-like features, including high dividend rates. The combined impact of these financial changes would have made it difficult to sustain a cash patronage program and a competitive interest rate pricing structure to customers.
- The proposed merger involved significant restructuring of the balance sheet including the selling off of a major portion of customer loans and the issuance of the preferred stock, all of which raised practical business issues and regulatory issues which were uncertain as to outcome and timelines.
- The proposed merger would have created an association with one of the weakest capital positions in the Farm Credit System, potentially jeopardizing the company’s ability to stay with customers during the adverse cycles inherent in the agriculture economy.
Patronage Plan Approved
Folkerts also noted that the FCSAmerica board approved the broad parameters of a patronage plan. Though the final details are still being developed and are subject to certain approvals, Folkerts indicated that the board had agreed on basic components of the plan that include the following:
- A cash patronage distribution of approximately $55 million based on 0.75 percent of eligible customer’s 2004 loan and lease balances payable in early 2005.
- Thereafter, an ongoing patronage program that is intended to distribute cash to customers on an annual basis. It is anticipated that the FCSAmerica board will make an annual decision on the amount to be paid in cash based upon earnings levels, loan growth, economic conditions, and other business conditions and financial considerations.
Folkerts indicated that the Board’s decisions will help the organization move forward. “I am very proud of FCSAmerica. I also remain very optimistic about our future,” Folkerts says. “I am confident that this senior leadership team will continue to bring a strong customer focus to everything we pursue. As we have for more than 85 years, FCSAmerica will continue to serve producers passionately.”
Jack Webster, FCSAmerica President & CEO agrees. “We made a bold effort to deliver new thinking and to serve our customers even more effectively than in the past. Our customers should be confident that FCSAmerica will continue to evolve to meet their changing needs in the future, and I am confident that our teams will forge ahead focusing all of their attention on fulfilling our mission of serving rural America with financial solutions, one relationship at a time.”
Farm Credit Services of America is proud to finance the growth of rural America, including the special needs of young and beginning producers. With over 59,000 customers and assets of over $8 billion, FCSAmerica is one of the largest providers of credit and insurance services to farmers, ranchers, agribusiness and rural residents in Iowa, Nebraska, South Dakota and Wyoming.
Forward Looking Statements – Certain statements obtained herein are forward-looking statements including, but not limited to, statements that are predictions of or indicate future events, trends, plans or objectives. Undue reliance should not be placed on such statements because, by their nature, they are subject to known and unknown risks and uncertainties. FCSAmerica does not undertake any obligation to publicly update or revise any of these forward-looking statements, whether to reflect new information, future events or otherwise.
