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Great Lakes Cooperative members to decide merger

By Staff | Jan 25, 2008

A packed house at the Estherville VFW Hall Wednesday night was a sure indicator of the interest area ag producers have in the proposed sale of Great Lakes Cooperative to Green Plains Renewable Energy, Inc.

Green Plains is proposing a $30-million buyout of the cooperative that would give current GLC members a combination of a $12.5-million cash and 551,065 of Green Plains common stock for a full buyout of the cooperative. Remaining sale assets would be eventually be disbursed to GLC members and an escrow account would be established to cover any unforeseen future claims on GLC.

Co-op shareholders will have until Feb. 4 to approve or deny the proposed merger which was recommended for approval by the GLC board of directors.

While producers begrudgingly acknowledged the handwriting was on the wall and that the co-op had to join forces for greater economy, they were also understandably concerned about keeping a market for their soybeans.

Kevin Hartkemeyer, GLC general manager, reviewed the cooperative’s relatively unsuccessful quest to for an ethanol industry partner from a time even before he joined GLC May 2005. With GPRE now entering the picture, that problem now appears to be resolved.

Hartkemeyer showed maps with corn market areas for ethanol plants and feed mills that indicated there is no shortage of corn demand in the area. “It really shows there’s going to be plenty of competition for the corn,” he said.

To the contrary, Hartkemeyer said through various meetings both GLC and GPRE representatives found they both had many complementary assets that would strengthen both companies as well as the local market competition.

Speaking from the GLC board’s perspective, Darryl Hansen said grain origination was what began the merger discussion. “We did not ask to be bought out,” Hansen said. “That was not our idea.”

Hansen said board members had some key questions for GPRE, including:

n Would GPRE continue to buy beans?

n Would GPRE stay in the agronomy and feed business?

n Would current employees be retained?

“They seemed to be very responsive to customer needs,” Hansen said of GPRE.

After deciding that the merger would be the best way to get equity value for its customers, Hansen said the board sought expert help to appraise the market value of the co-op’s facilities, prepare a cash-flow analysis, and get advice from the co-op’s auditor and attorney.

Hansen said the co-op concluded that the merger would be in the members’ best interest. Members would get to make the final decision. “We felt that offer was not only fair. It was exceptionally good,” Hansen said.

One possibly ripple of suspicion among members may have been what they perceived as an air of secrecy about the meetings between GLC and GPRE regarding the merger.

Hansen said the reason that those discussions were until recently kept under wraps was that the federal Securities and Exchange Commission required that discussions be confidential to avoid insider trading. The SEC has approved the merger plan which now goes before the members, Hansen said. “It’s your company. It’s up to you to make the final decision,” he said.

Wayne Hoovestol, GPRE CEO and the largest shareholder, said most shareholders resided in the Midwest. “Our shareholders are very similar to your members,” Hoovestol said.

Hoovestol said GPRE’s first ethanol plant opened in Shenandoah last August and Superior is scheduled to open in March.

Hoovestol reviewed plans for a vertical integration strategy that would help market grain, give members asset liquidity through shares of stock, make a natural hedge for grain marketing and ethanol production, create a public vehicle to facilitate the growth of GPRE’s and GLC’s business, and to position GPRE to work directly with producers.

The result of the proposed merger, said Hoovestol, would create “opportunities for future innovation and collaboration in agriculture and energy.”

Attorney Jim Long reviewed the process of converting GLC shareholders’ equity to cash and shares of GPRE stock. He noted the number of shares of stock planned for distribution to GLC members had increased 22 percent since merger meetings began last fall.

Long said two purposes of the escrow account that would be established would be “to indemnify Green Plans Renewable Energy from possible losses” and to “distribute remaining cash to shareholders.”

Long said small shareholders will be cashed out early to cut overhead. A total of $12.5 million cash and $7.5 million will initially be distributed to members. The transaction is structured as a merger so as to avoid having to pay corporate income tax which would essentially tax members twice.

Speaking to the basis of the GLC board’s decision to recommend merger approval, Bryan Bailey noted several factors:

n Ethanol growth will change the market.

n The cooperative will continually face higher risk and costs.

n Major changes will happen to the cooperative even without a merger.

n The merger will make GLC and GPRE partners in vertical integration.

n The merger is the best way to assure all members receive their co-op equity.

Bailey said the total package means an offer of over $30 million based on current values.

Anticipating commonly asked questions, members were told:

n Remaining member equity will be paid from the escrow account.

n Outstanding contracts and prepayments will be honored.

n No other offers were made by any other party to buy GLC.

n It is unlikely if GLC would have made more if assets were sold separately.

n A 2007 dividend was waived since the cooperative paid a large amount of merger-related taxes.

In the question-and-answer session that followed, members were told:

n If the vote fails, GPRE will continue to buy corn from GLC and make ethanol.

n GPRE may build additional corn storage.

n GPRE is willing to commit to not get into the farming business.

n Hoovestol said finding a board member of the merged company “is absolutely the right thing to do.”

n Hoovestol said he was also willing to talk to anyone present Wednesday night who was interested in being on the board of directors.

n Hoovestol also said switchgrass, as well as other technologies, would join corn in the many future processes of the ethanol industry.

n Hartkemeyer said that while figures were not immediately available for what was being paid for individual structures, he could provide the totals GPRE was proposing to pay for GLC for its assets in each community.

Contact Michael Tidemann at (712) 362-2622 or mtidemann@esthervilledailynews.com and visit our photo sharing Web site at cu.esthervilledailynews.com