U.S. investor to buy Prairie canola ‘streaming’ firm

All-cash deal offers $97.5 million for Input Capital

(Photo courtesy Canola Council of Canada)

A U.S. investor has stepped forward with an all-cash bid for the Regina company that brought “streaming” to the Prairie canola marketing business.

Input Capital, which in February last year began to review options such as a sale or merger to “enhance shareholder value,” said Wednesday it has a deal to sell all of itself to Bridgeway National, a Washington, D.C.-based firm, for about $97.5 million, or $1.75 per share.

Input, in business since 2012, bills itself as a “non-operating farming company” dealing in canola — which it obtains from Prairie farmers by way of “multi-year streaming contracts,” including capital streams, marketing streams and, for a brief time, “mortgage streams.”

The company’s canola purchases, from growers in all three Prairie provinces, generally involve up-front payments in return for agreed-upon tonnage over a specified number of years.

Since last year, Input CEO Doug Emsley said Wednesday in a release, the company’s board has run “an exhaustive strategic review process, to seek out a partner with a source of scalable capital to grow our mortgage stream business.”

Input shareholders “will know that for the last 14 months, we have continued to search for a capital partner while focusing on growing book value per share.”

Bridgeway’s bid calls for a 103 per cent premium to Input’s closing price Wednesday (86 cents) on the TSX Venture Exchange, a deal Emsley said “provides immediate liquidity and certainty of value that we believe to be in the best interest of all shareholders.”

The proposed deal “creates a strong foundation to accelerate growth of Input’s innovative mortgage stream business,” Bridgeway CEO Eric Blue said Wednesday in Input’s release.

“We believe we can help scale this business to become a well-known financial solution provider to farmers in Canada, and potentially beyond.”

An email to Blue about Bridgeway’s plans for Input was not immediately answered Wednesday evening.

Bridgeway, which until late last year operated under the name Capital Park Holdings Corp., said in Input’s release its focus is on acquiring “quality, well positioned businesses that operate in industries with strong tailwinds” while shunning what it describes as “market fads.”

The Bridgeway bid has the approval of Input’s board of directors, who along with senior company officers have agreed to vote all their shares — about a third of Input’s stock altogether — in favour of the deal.

A circular will go out to other shareholders ahead of a special meeting to be held sometime next month. If approved, the deal is expected to close in October, after which Input’s shares would be delisted from the TSXV.

Mortgage financing

Input has dialed its activities in the ag business way back in the past couple of years, citing “instability and uncertainty” in canola markets.

The company in 2018 had set up a pilot to offer “a conventional farmland mortgage product that uses canola streaming as a payment vehicle.” In May last year, however, it put off those plans, saying scalable funding for a mortgage stream business was “not competitively available in the marketplace at this time.”

In its third-quarter financials, released separately Wednesday, Input reiterated it hasn’t deployed new capital since May 2019 and won’t do so until it can get “a scalable source of mortgage financing.”

Input had 406 active marketing streams with Prairie farmers at the end of June 2019, but last year offered those clients the option to end their contracts early.

Given the number of contracts cancelled or bought back, Input was down to just 96 active streams at June 30 this year — 78 in Saskatchewan, 14 in Alberta and four in Manitoba.

For its Q3, Input reported adjusted crop revenue of about $96,000 on adjusted crop volume of 224 tonnes. It sold no physical crop during the quarter, settling its tonnage obligations in cash rather than crops.

Emsley said Wednesday the company’s strategy “remains focused on the maximization of book value on a per-share basis,” by reducing operating expenses and buying back shares.

Canola prices have been “relatively stable in our expected price range over the last year,” Input said in its Q3 report. “The market is softened due to trade disruptions with China, Canada’s traditionally largest canola customer, but firmed by increased demand from Europe.”

Input said its remaining contracts are still profitable at today’s prevailing canola prices, reiterating that “the price of canola could fall below the marginal cost of production of our farm clients, and our canola margins would remain positive.”

Input in 2018 was the plaintiff in a high-profile court case against a Saskatchewan farmer, alleging breach of contract over unmet canola delivery obligations against several upfront payments by the company.

A Queen’s Bench judge in May that year ruled the farmer was “unjustly enriched” by the payments and must repay the money. However, the judge also ruled the farmer’s various agreements with Input “must be set aside as unconscionable” and described the contractual relationship as “substantially unfair.”

But the Saskatchewan Court of Appeal, in August last year, set aside that “finding of unconscionability.”

The appeal court ruled that if arrangements between Input and the farmer were “unconscionable by reason of the nature of the security interests… then all other secured agricultural lending arrangements are too.” — Glacier FarmMedia Network

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