CRI/Alta Merger Would Be First of Its Kind

Proposed merger of CRI and Dutch-based Koepen Holding would be the first ever marriage of a large U.S. farm cooperative with a privately-held foreign company. ( Chris Helgren, Reuters )

The proposed merger between Cooperative Resources, International (CRI), the parent cooperative of GENEX, and Koepon Holding, a Dutch, privately owned company and parent of Alta Genetics, would be the first-ever, large-scale marriage between a farmer-owned cooperative and a privately-held company.

Also unique, and perhaps a little unusual for a U.S. cooperative, is that CRI would become a minority shareholder, with CRI receiving at least a 30% equity share. CRI’s affiliates, Genex and AgSource, would hold three of seven seats on the new company’s governing board. The new company, if approved, would be headquartered in Wisconsin and could be functioning by mid-year.

The merger, announced in December, was a primary point of focus at CRI’s annual meeting here in Bloomington, Minn. this week. In order for the merger to occur, two-thirds of CRI’s 184 voting delegates must approve. That vote, pending further due diligence by both parties, could happen in early May, says  Pete Giacomini, CRI’s VP of business development.

The merger would catapult the new company near the top spot in terms of U.S. bovine semen market share. The combined company would have the size and scale it needs to better compete both nationally and internationally, says Keith Heikes, CRI CEO.  Alta Genetics has a strong presence in the Netherlands, Canada, United States and markets semen in more than 80 other countries.

A merger would also allow the company to better invest in research and development into new products and services to keep it ahead of competitors. And it would be better able to compete for bull power, with some top-end genomic Holstein bulls now commanding six and seven-figure purchase prices. While those purchases can be high-risk on a number of levels, A.I. studs often feel they need headliner bulls for marketing purposes to show their bull line-ups are genetic leaders.

In the merged companies, GENEX and AgSource (CRI’s DHI subsidiary) would continue to operate as cooperatives. “Members would continue to do business with AgSource, GENEX and their sales representatives,” says  Giacomini. Alta Genetics would also continue its current sales structure, says Cees Hartmans, CEO of Koepon Holding.

One fly in the ointment, however, is CRI’s poor financial performance in 2017. That came mostly as the result of CRI’s purchase of MOFA Global in 2014. MOFA Global was purchased as a way to capitalize on new semen sexing technology, which CRI had already been investing in. MOFA also had a boar semen extender product that allowed CRI to enter the swine market.

But both those products went awry since CRI purchased the company, and prospects for turning either into positive cash flow are dim. Consequently, CRI bit the bullet in 2017, writing down tangible assets to the tune of about $13 million and reporting a pre-tax loss of almost $17 million. The write-down was not taken from member equity. But its working capital was drawn down 39%.

The consequence of all of this is that CRI’s balance sheet now totals just under $133 million, or $12 million less than what it was on Sept. 30, 2016, before the write-downs occurred, says Dave Mellinger CRI’s chief financial officer. Even so, CRI reported revenues were up nearly $3 million in 2017  to $192.7 million, EBIDTA (earnings before interest, depreciation, taxes and amortization) were up nearly $3 million as well, and debt was reduced by more than $3 million. “The cooperative is well-positioned to take advantage of opportunities that arise in 2018,” he says.

Giacomini also emphasizes “the merger is not being proposed as a result of recent CRI performance,” with merger discussions going back more than two years. CRI could turn down the merger and remain independent, he says, but it would face more challenging prospects as it tries to compete both here and globally.

SIDEBAR: CRI Is a Poster Child for Mergers

Lost in all the hoopla over the proposed CRI/Koepon merger is the fact that CRI is itself the epitome of co-op merger mania. This year, it celebrates the 25th anniversary of the merger 21st Century Genetics and Wisconsin DHI in 1993 to form CRI.  That set the stage for a whole host of other mergers:

  • 1993: 21st Century Genetics and NOBA entered a joint marketing agreement, and in 1994, NOBA voted to become a CRI subsidiary.
  • 1996: Atlantic Breeders, Eastern AI and Louisiana Animal Breeders Cooperative formed GENEX and joined CRI as a subsidiary. AgSource acquired Central Wisconsin DHIC and GENEX purchased Hawkeye West.
  • 1999: Central Livestock joined CRI as a subsidiary.
  • 2006: CRI purchased Genetica Avandada in Brazil. AgSource acquired Harris Laboratory in Lincoln, Neb.
  • 2007:  CRI purchased RASA in Mexico.
  • 2014: CRI purchased MOFA Global.
  • 2017: CRI and Koepon Holding announce plan of merger.
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