UAP unloads subsidiaries in Idaho, Nebraska

GREELEY-United Agri Products has sold two of its seed chemical companies and let approximately 46 employees go.
Officials with the company declined to comment, citing a U.S. Securities and Exchange Commission-imposed quiet period. The company is preparing for a public stock offering.
Todd Suko, vice president, general counsel and secretary of UAP Holdings Corp. said, “It is company policy not to discuss future events or discuss other company issues.”
According to memos obtained by The Northern Colorado Business Report, UAP sold Snake River Chemical Co., located in Caldwell, Idaho, to competitor Wilbur-Ellis Co. on Oct. 4. On Oct. 8, UAP sold the business and manufacturing capabilities of its Fremont, Neb., Platte Chemical Co.
According to the first memo, the sale of the Snake River Chemical Co. “includes the alder bark formulation patents, potato seed piece treatment product registrations, and the potato seed piece treatment toll manufacturing business.”
The document continues by stating that Loveland Products Inc. – the UAP division that headed Platte Chemical and Snake River Chemical – will procure potato products as private-label items from Wilbur-Ellis. Secondly, the manufacturing of products will be moved to the Wilbur- Ellis facility in Fresno, Calif.
The closure of the Snake River facility is effective immediately. The factory employed six.
The sale of the Platte Chemical business “includes the toll manufacturing business and equipment assets at the site … The toll manufacturing volume will be moved, in its entirety, to the Helena facility in Des Moines, the fixed assets at the site will be relocated to Des Moines and the Fremont site will be closed.”
The second memo says there will be a period of transition until early Spring 2005. It is estimated the facility employed 40 people.
United Agri Products is not selling the buildings that served each business, which include a 84,751-square-foot building in Fremont and a 29,746-square-foot building in Caldwell.
In 2003, crop protection chemicals accounted for 65.7 percent of UAP’s net sales by product line.
A former employee, who wished to remain unnamed, had seen the memos and speculated UAP might want to get out of the manufacturing business.
“It looks like they are reining in their cash and selling these businesses to improve their balance sheet,” the former employee said.
An investment analyst who watches initial public offerings agrees UAP may have sold the businesses to attract more attention from the market.
“One has to wonder whether these were cash drains and the company may have felt they needed money and they used the proceeds to get attention,´ said David Menlow, president of IPOfinancial.com.
Menlow said more information on the sale will be present in the company’s fourth amendment when it is filed.
“I am thinking they are making themselves look better … they also may have wanted to release cash flow into the capital reserve,” he said. “There are a myriad of issues and until it becomes public record it is all speculation.”
It has been nearly seven months since the Greeley-based distributor and manufacturer of agricultural supplies filed for the rights to sell up to $625 million in income deposit securities, or IDS shares, on April 7.
Since April the company has filed amendments to raise the value of the offering. UAP hopes to sell 36.5 million shares of the IDS stock at an initial price of $20 per share – comprised of $8 allocated to each senior subordinated note and $12 allocated to each share of common stock – which reflects a value of $730 million. United Agri Products is expected to trade on the AMEX exchange under the symbol “UAP”.
UAP cannot begin to sell the securities until the SEC declares the company’s registration statement effective. The company is looking to call the outstanding debt in now to improve its financial standing before the upcoming IDS offer.
The lag time since the April 7 filing is notable in historical terms. Normally, an IPO is executed within three months of the S-1 registration.
Part of the difficulty may be shaky reception on Wall Street for the IDS instrument, an investment tool that was introduced into the marketplace last year.
The shares are a hybrid between class A common stock and senior subordinated debt.
According to the American Stock Exchange, IDS shares “represent shares of a company’s common stock and debt combined into one security that trades like a stock on an exchange.”
Meanwhile, the watch is on for when UAP finally calls in its outstanding debt.
The company wants to buy back $350 million in notes, which include a $125 million issuance at an interest rate of 10.75 percent and a $225 million issuance at 8.25 percent. The $125 million was initially set to mature in 2012, and the $225 million is set for 2011.
According to the company’s listing of risk factors relating to the IDS offering, the level of UAP’s indebtedness is currently referred to as substantial, but the fiscal level was not released.
When the stock sale commences, it will once again allow United Agri Products to be a publicly held entity. Food giant ConAgra Foods Inc. sold UAP in November 2003 to Apollo Management L.P. for approximately $600 million. Apollo Management owns United Agri Products Holding Corp. UAP is owned entirely by United Agri Products Holding Corp.
United Agri Products is the nation’s largest private distributor of agricultural and non-crop inputs. The company’s products include fertilizers, pesticides and seeds.
The company has 350 distribution and storage facilities and three formulation and blending plants in the United States and Canada. UAP employed 3,395 in 2003 and earned net income of $25.2 million.
In the original S-1 filing, UAP officials stated the company plans to follow the trends in agriculture, which include, “the use of more effective chemicals and fertilizers, stable planted acreage, the trend towards larger and more efficient farms, and the increased use
of biotechnology in the production of seeds.”
The S-1 document discusses the continued consolidation in the agriculture market and says the company “believes these trends will continue and will result in greater demand being placed on agricultural input distribution companies.”
These statements hint that United Agri Products is offering this hybrid stock-debt security to raise capital to acquire other input distributors to better compete in the marketplace.
“The market has consolidated significantly over the last 10 years,” the company wrote. “We believe, based on independent consulting work which we sponsored, that in 2002 the largest six retailers accounted for over 50 percent of sales by the largest 100 retailers in our industry measured by sales.”
In fiscal year 2003, UAP had net sales of $2.5 billion, including the net sales of crop protection chemicals of $1.7 billion, net sales of seeds of $270.8 million and net sales of fertilizer of $510.6 million.

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