WestlockGrainTerminals
ACaseStudy
WrittenbyPaulCabaj,CanadianCentreforCommunityRenewal MikeGismondi,AthabascaUniversity RichardStringham,AlbertaCommunityandCooperativeAssociation DarrenWood,CooperativeIntern,KeepEdmontonOriginal SponsorsTheauthorswouldliketothanktheBoard,DirectorsandStaffofWestlockTerminals(NGC)Ltd. forgenerouslyofferingtheirtimeandinsightinthedevelopmentofthisstudy.Yourworkand dedicationareaninspiringexampletoruralcommunitiesacrossthecountry. FinancialsupportfortheprojectwasprovidedbyAthabascaUniversityandtheCanadianCo operativeDevelopmentInitiative,withoutwhoseassistance,thiscasestudywouldnothavebeen possible.
BoardMembers:(BackRowLR)WaynePeyre,GilDubrule,RichardKrikke,SteveMiller,BrianTrueblood,Lonnie Brown(FrontRowLR)HarryDeWindt,DrAlanWatt,DenisRivard,LarryArndt
WestlockTerminals(NGC)LTD
WestlockTerminals(NGC)LtdisanexcitingnewgraincompanyincorporatedonAugust23,2002and beganacceptinggrainonDecember5,2002.WestlockTerminalsisanindependentlyoperatedgrain terminallocatedinthetownofWestlockatthecrossroadsofhighway44andhighway18,situatedona CNRailwaymainline. WestlockTerminalsLtdisownedbyover230shareholdersthatareablendoffarmersandbusiness peoplefromthedrawareasurroundingtheterminal.WestlockTerminalsprovidesregularreturnsto shareholdersthroughthedividendyieldsoftheClass“C”sharesaswellastheincentiveyieldsofthe Class“D”shares. WestlockTerminalshasutilizedcapitalinvestmentfromthecommunitytomaintainaprofitable operation.Thiscommitmentwillfacilitatetheviabilityoflocalinfrastructureinadditiontoproviding investorsapositivereturnontheirinvestment.Thiscommitmentisevidentintheorganization’s “MissionStatement”and“VisionStatement”nowandforthefuture.MissionStatement
"Todevelopaviablebroadspectrumgrainbusiness,impactingcommunitygrowth,promotingquality serviceandproductivity."Vision
"YourGrainLinkToTheFuture"TheWestlockGrainTerminalsisaverysuccessfulNewGenerationCooperativelocatedinWestlock, Alberta.In2002,whenthecommunityfoundoutthattheirgrainterminalwasgoingtobesold,they ralliedtogethertoraisemorethan$1.2milliontopurchasetheterminalasacommunityownedventure. Sincethen,theCoophaspaidhealthydividend,onitssharestomembersandinvestorseveryyearand arefollowingthroughonplanstocontinuallyexpandtheirgrainhandlingcapacity.Itssuccesswasa resultofthevisionanddedicationofasmallgroupoffarmers,withthesupportofsomekeyindividuals, and,aswithanynewventure,alittlebitofluck.TheexperienceofWestlockTerminalshaslessonsto offertoanycommunityfacedwiththelossofamajoreconomicasset. WestlockTerminalsandtheAlbertaFarmCrisis TheWestlockTerminalstoryisencouragingatatimewheninspirationishardtofindintheruralAlberta countryside.IncontrasttonationalimpressionsofAlbertaasanoilrichpetroleumstate,ruralsociologist RogerEppclaimsthatthereareinfact2Albertas–onerichandonestruggling–andthatsince1996 thesetwoAlbertashavedemonstrated“divergentspatialgeographiesandprospects.”ThefirstAlberta, anoilrichandranchingprovincewidelyknownacrossCanada“concentratedintheHighway2corridor linkingCalgaryandEdmonton,andalsoincludingthenorthernresourceboomtownsofFortMcMurray andGrandePrairie.”ThesecondAlberta,apoorerand“spatiallyouterAlberta,”hedescribesasrural, agricultural,andoutsidethe“Albertaadvantage”..ItisthislatterAlbertawhereEppfindsanever deepeningthefarmcrisis.AsEppexplains: Thefarmcrisisisaboutdisintegratingruralcommunities.Raillinesareabandonedandgrainelevators camedown.Taxbasesshrink.Populationshaveagedanddeclined.Retailstoresandgovernment serviceslikehospitals,schoolsandpostofficesareconsolidatedinlargercenters.People,whohave givenvolunteerenergy,wearoutormoveaway. Thefarmcrisisisalsoaboutthelackofleadershipthatcanrepresentafracturedagricultural community.Itisaboutcomingtotermswiththenationalpoliticalirrelevanceoftheprairiefarm vote,andwithurbanruraltensionsripeforpoliticalmanipulation.Farmpeopleoncewere romanticizedasthebackboneofthecountry;nowtheyareperceivedasparasitesonthepublicpurse andfeelpowerlesstochangethatperception. Thefarmcrisisisaboutfearsforthefutureofwhatisgoodworkworkthatfeedspeople,engages parentsmeaningfullywiththeirchildren,andrequiresmultipleskills.Nowfarmpeopletalkaboutthe prospectofbecoming'bioserfs'undercontracttooneofahandfulofseedchemicalconglomerates. Theyworkgreatdistancesoffthefarmtosubsidizetheiroperations(invulnerableruralprofessionslike nursing),andfaceRevenueCanadareclassificationashobbyistsfortheirtrouble.Theyconstitute perhapstheoldestoccupationalgroupinthecountry.Manyofthemareeatingupwhatoughttobe retirementequity,postponingwhateventuallywillbeamakeorbreakperiodofgenerationaltransfer. Inthatsense,too,thecrisisisabouttheimmensepsychologicalburdenofkeepingathirdorfourth generationfamilyfarmthatisnotmerelyabusiness,butaphysicalanchorofhomeandidentity. Finally,thefarmcrisisisaboutanacutesenseofgovernmentabandonment. SeRogerEpp,TheFarmCrisis.2002.http://ualberta.ca/~parkland/post/VolIVNo1/03epp.html In2002,againstthiscontextofcrisis,thefarmersandcommunitiesoftheWestlockregionfounda creativecooperativesolutiontosaveWestlockTerminals.Facingthefarmcrisismakestheir achievementallthemoreimpressive.
Background
TheprairiegrainelevatorterminalisaniconicsymbolofwesternCanada’sagricultureroots,a communitylandmarkwhoseheightwaschallengedonlybythechurchsteeple.VirtuallyeveryAlberta communityofmorethanafewhundredpeoplehadagrainelevator.Grainelevatorswerecrucialforthe survivaloffarmingcommunitiesacrosstheprairies,actingastheonlymarketaccesspointfortheir harvesteveryyear.Theterminalswouldbuygrainfromfarmers,eitherforcashoratacontractedprice, andthensellthegrainagainforinternationalbuyersoronthecommodityfuturesmarket.Toavoidthe temptationofpricegougingbytheterminalowner,manyofthesemanygrainelevatorswereoperated byfarmerownedcooperatives,rangingfromsmallcommunitybasedcooperativestohundredsowned bytheAlbertaWheatPool,Canada’sfirstevergraincooperative. Overtime,astransportation,primarilytractortrailerdeliveryimprovedandasgrainpricesrecededin comparisontoothercommodities,larger,morecentralizedterminalswerebuiltandaseriesofgrain handlingcompanyamalgamationstookplace.TheAlbertaWheatPoolamalgamatedwithManitoba WheatPooltoformAgricoreCooperative.Finallyin2001,UnitedGrainGrowersLimited(foundedin 1906)andAgricoreCooperativeLtd.amalgamatedtobecomeAgricoreUnited(”Agricore”).Sincethen, smalltowngrainterminalclosures,coupledwiththeshutdownofarangeofshortlinerailwaysacross theprovince,hasresultedinageneralservicedecline.Farmershavebeengraduallypushedfurther afieldtodelivertheirgrain. Withover1000farmsinWestlockCountyanddirectaccesstoapproximatelytwicethatnumberin surroundingcounties,WestlockTerminalsislocatedintheheartofoneofthemostproductivegrain growingregionsonthecontinent.Thecountyenjoysfertilesoilsandgoodbalanceofrainandsun. However,despiteitsproximity,bytheendofthecenturymanyofthefarmersintheregionwereselling theirgrainatsurroundingterminals.Atthetime,thethennamedWestlock“Agricore”elevatorwashandlingapproximately85,000tonnesof grainannuallyataprofit.Forthecompany,however,thesereturnswerenotsufficientparticularlyin lightofitsheftycapitalinvestmentinupgradingtheterminal’santiquatedwoodconstruction.Agricore wasmovingtoclosedowntheoperationsandtodivertthemajorityofitscustomerstoEdmonton terminalssome100kmaway. WhentheclosureoftheWestlock“Agricore”elevatorwasannounced,acomplaint(which,aswithall suchcomplaints,hasbeenkeptanonymous)wenttotheCompetitionBureau(CB)Canada http://competitionbureau.gc.ca/eic/site/cbbc.nsf/eng/home).Thecomplainantraisedconcernsthatthe AgricoremergerhadreducedthecompetitivenessofgrainhandlingintheEdmontonandPeaceRiver Regions.Uponfurtherreview,CBagreedwiththecomplainantandbegantalkswithAgricoretoresolve theissue.Agricoreagreedtodivest,ratherthansimplyclosedowngrainelevatorsinthe Edmonton/PeaceRiverregion,includingelevatorsinthecommunitiesof:Gaudin,Killam,Westlock, Bawlf,RycroftandFalher.AgricorewasgivenuntilAugustof2002tofinalizethesaleoftheterminals. GrainproducersintheWestlockareaaffectedbythisdecisionoftheCBAheldameetingtodecidetheir nextsteps.Thegroupofapproximately35individualscreatedathreepersoncommittee(DaveFelstad, RandyGabel,andJohannVonRennenkampff)tofindaprivatebuyer.Thecommitteespenttwomonths contactinglargegraincompaniesinWesternCanadawhomightbeinterestedinpurchasingthefacility. TheproducersunderstoodthattheterminalhadbeenprofitableforAgricore.Theyalsorealizedthe facilityhadtwodrawbacks: 1. Therehadnotbeensubstantialinvestmentsfordecades 2. Itwaslocatedintown,whereasmostnewterminalsarelocatedoutsidetowncentersto accommodatetransportandgrowth. Unfortunately,manyprivatebuyersthoughtthattheterminalsweresimplytoooldanddilapidatedfor investmentpurposes.Slightlydisheartened,thecommitteerealizedthatapersonoragroupofpeoplein thecommunityweregoingtohavetopurchasetheterminals.Theyhadoneyeartosolvethedilemma. Theydiscussedcreatingajointventurebetweenfiveproducers,basedonmodelstheyhadseeninother communities.However,thesejointventurestendedtofocusonthegrainhandlingneedsofthe partners,ratherthanthewiderfarmingcommunity.Theythusconcludedthatthisshouldbea communityinitiative. DaveFelstadpresentedtheirsituationtotheWestlockRotaryClubinanattempttosparktheinterestof thelocalbusinesscommunity.TherehewasintroducedtoMarieGallantoftheTawatinawCommunity FuturesDevelopmentCorporation(anotforprofitorganizationcommittedtoruraleconomic developmentwww.cfna.ca).Intriguedbythesituationandunderstandingtheimportanceofthe terminalsfortheentirecommunity,MarierequestedameetingwithDaveandtheotherCommittee memberstotalkabouthowshecouldhelp. Attheirinitialmeeting,thecommitteestressedthatlosingtheelevatorwouldhavesignificanteconomic andsocialimpactsonthecommunity.Mariecouldtellthattheywereveryknowledgeableaboutthe agriculturebusiness,butlackedthenecessarybusinessplanningexperience.Theydecidedtobrainstorm differentorganizationalformstheycouldcreateandthestepsrequiredtomakethemareality.They
indentifiedseveralbusinessmodelsthatmightworkanddecidedtoconductadditionalresearchto evaluatetheirviability. BasedonsomeofthesupportprovidedbyMarieGallant,thesteeringcommitteewasabletoconvince boththeTownandtheCountyofWestlocktocontribute$5,000eachtowardsthecostsofstartinganew organizationtoownandmanagetheterminals.Thesefundswereusedprimarilytosupportthe prefeasibilityworkontheterminal,includingtripstovisitothercommunityterminals,particularlyin Saskatchewan.TripstoSaskatchewanwereatthepersonalexpenseofthethreefoundingDirectors. ThegroupdrewuponexperiencesgenerouslysharedbythebuyersofTerminal22atBalcarres, Saskatchewan.Terminal22,foundedin1998,isamodernstateoftheartgrainhandlingfacilitythatis “50/50jointventuregraincompanycomprisedoflocalareafarmersandCargillLimited.”(The SaskatchewanEncyclopedia)TheWestlockgroupmetwithTerminal22’sChairandSecretaryTreasurerin April2002todiscussapproachesforraisingcapital.Theyofferedthefollowingcouncil: x Keepsharepriceslowenoughtoencourageinvestmentfromallmembersofthecommunity,buthigh enoughtoraisesufficientinvestmentcapital. x Setashorttimeframeforpeopletoinvest(approximatelysixweeks)becausethemajorityof investorswillwaituntilthelastweek(orday)topurchaseshares.Ifthetimeframeistoolong, investorsmayloseinterest. x Talktothesurroundingcommunitiesbecausetheyhaveastrongvestedinterestinthisventure. x Donothireasalesmantoselltheshares.Thisistheworkoftheprojectleadership.Thepeopleofthe communitywillbemorelikelytotrustsomeonetheyknowandrespect. ThecommitteereturnedtoWestlockinspiredandwithrenewedideasfordevelopingasuccessful communityownedterminal. BuildingonthemodelofTerminal22,thecommitteemetwithafewdifferentlawyersabouthowto structureapublicallyheldcompanythatcouldsellsharestothecommunity.Theywerestruckbythe amountoftimeandmoneyneededtocreatealimitedliabilitycompany,andparticularlyformeetingthe AlbertaSecurityCommissionsdisclosureprocessforissuingshares.Theynotedthatcostsofthismodel werequitehighandthisencouragedthemtolookatothermodels,whichiswhentheyencountered BrianKalielandMerleGood. BrianKalielhadbeenoneofthefewlawyersintheprovincewithexpertiseinthecoopmodel.Merle GoodwasataxspecialistwithAlbertaAgricultureandRuralDevelopmentwhohadworkedwitha numberofagriculturecoopsintheprovincethroughhisextensionrole.BrianandMerlewereamong thekeyauthorsbehindtherevisiontheAlbertaCooperativeAct.Theyhadpushedforchangesbasedon theirexperienceworkingtogetherontheformationofanumberofcoops.Theypushedparticularlyhard onwhattheysawwerelimitationsforcooperativestoraisecapital.Basedontheirexperience,they championedtheinclusionofmultistakeholdercooperatives(theActhadpreviouslylimitedcoopsto onetypeofmembership)andtheinclusionofnonmemberinvestmentshares,aswellastheconceptof theNewGenerationCooperative(NGC).1NewGenerationCoopsaresometimesdescribedashybrids 1 TheAlbertaCooperativesActcanbeaccessedontheQueen’sPrinterwebsite: http://www.qp.alberta.ca/574.cfm?page=C28P1.cfm&leg_type=Acts&isbncln=9780779740185
oftraditionalcoopsstructureandlimitedcompany.ForacomprehensivereviewoftheNewGeneration Coopmodel,pleaseSeeAppendixIII:“NewGenerationCoops:Alberta’sNewestOptionforAgriculture Business”. Inmanyways,theWestlockTerminalProjectwasanidealprojectforBrianandMerle.Itencapsulated allthepowersofthenewlyrevisedAct.Togetherandseparately,BrianandMerleheldanumberof planningsessionswiththeWestlockcommitteetocraftthecoop’sstructure.In2002,Westlock TerminalsNGCbecamethefirstcooperativetoberegisteredunderthenewAlbertaCooperativeAct. ThoughentitledWestlockTerminals(NGC)Ltd.,WestlockTerminalsalsocontainselementsofthemulti stakeholdercoop.Principalamongtheseisitsabilitytoissuecommunitymembershares.Thisabilityto issuevariousclassesofsharesprovedtobecrucialinitscapitalcampaign.Foundingmemberswereable togenerateconsiderablecommunityengagementbecausethecommunitylocalswouldbetheowners, allowingthemtogeneratesignificantequitysomethingwellnighimpossibleforajointventure.In addition,shareissuesforcooperativesarenotasonerousastheyareforpubliccompanies(i.e.,anoffer ofmemorandumisusedandaprospectusisnotrequired).Consequently,sharescanbeplacedforsale quicklyandforlessexpensethansharesforpubliclytradedcorporations.Foramoredetaileddiscussion oftheWestlockTerminalsShareStructure,seeAppendixI. Havingsortedouttheirlegalstructure,thegrouphiredabusinessconsultantfromEdmonton,Serecon Consulting,tocreateabusinessplan.Whiletheproducerswereabletocapablyestimatethefinancials regardingthereceiptofgrain,theyhadlittleexperiencewiththeshippingside,whichwaskeytotheco op’sprofitability.Aswell,thecommitteedrewupontheexpertiseofanAgricoreexecutivewhodrafted aninterimbudget(freeofcharge!)thatincludedbestcaseandworstcasescenariosfortheterminal. Thesescenariosindicatedthattheterminalwouldbeaverylucrativeinvestmentiftheyhadagoodyear, andthattheywouldremainintheblackeveninbadyears.Thenumberswereproofenoughthatthe committeewastalkingaboutapromisingventure,notanidledream. FormingaBoardofDirectorswasthenextmajorhurdle.ThecommitteeheldameetinginWestlockto updateinterestedpartiesonthestatusoftheinitiativeandtorecruitmoreBoardmembers.Aftersome coercingandalittlebitofhumility,theywereabletofind10individualstomakeaBoard–twoofwhom wereprofessionalsfromthebusinesscommunity.Anevengreaterchallengeforthefounderswasto fashiona“suite”ofshareissuesthatcouldconnectthebusinessinterestswitharangeoflocalresidents farmers,professionals,thewelloff,andthenotsowelloff–inordertomaximizepublicbuyin. Thecommittee,workingwithadvisorsBrianKaliel,MerleGoodandMarieGallant,spentasignificant amountoftimediscussingtheshareprocess.Theycameupwiththefollowing:
ClassAShares:Membershipshareforallmembers
ClassBShares:Ahigherriskinvestmentsharethatcanbesoldtomembersandnonmembersalike withaninitialpriceof$2000
ClassCShares:Investmentsharesthatcanbesoldtobothmembersandnonmemberswithpriority redemptionvalueandafixedreturnof7%.
ClassDShares:Investmentsharethatprovidesaddedreturnstofarmingmemberswhodelivergrain
ClassEShares:Shareclassforfoundingmembersusedforinitialcoopdevelopmentcosts.Class‘E’shareswereofferedforsaletothefoundingmemberstocoverthelegalandconsultingfees beforeafullshareissuecouldbeconducted.Theseshareswerehighrisk.Iftheorganizationdidn’tstart, theywouldlosetheirinitialinvestment.Iftheywereabletogetthecompanyupandrunning,class“E” shareswereeligibletobeconvertedintodividendpayingsharesattwotoone,recognizingtheriskof venturecapital. TheWeslockTerminalscommitteeestimatedthattheywouldhavetoraiseatleast$1milliontogetthe terminalsupandrunning.Preferred,nonvotingshareswhichwereissuedtothepublicwere$5000 each,withanannualdividendof7%.Producerscouldpurchasesharesfor$2,000formembershiprights. TheyalsohadaccesstoClass‘D’Shareswhichwere$2,000eachandincludedpatronagedividendsand profitsgeneratedfromgrainhandling. Thecoopmadeastrategicdecisionthatitwouldbeopentoanydelivery,whetherornotthefarmerwas amemberofthecoop.Inthiswaytheyhopedtocaptureasmuchofthegrainmarketintheregionas possible.Limitingservicetocoopmemberswouldlikelydetermanyfarmersfromusingtheterminal. However,farmerswhowantedtoreceivepatronagereturns(profitsharingbasedonthepercentageof businessconductedwiththecoop)wouldberequiredtopurchaseaClassAmembershipShare.ClassD DeliveryRightsSharewerealsomadeavailable,soClassAmemberscouldreceivegreaterpatronage returnsinproportiontothevolumestheysoldtotheterminal. Again,drawingonthesageadvicefromtheexperienceofTerminal22,theBoarddecidedtheirinitial shareofferingwouldbeavailableforonly6weeksfromJuly,2002toAugust,2002.Theyknewitwas goingtobeanuphillbattle.Localinvestors’confidencehadrecentlybeenshakenbyotherfailed agriculturalinitiativesintheregion.Forexample,anumberoffarmfamilieshadlostmoneywhena swinecooperativefailedinnearbyBarrhead.Aswell,adroughtthatsameyeardeterredmany producersfrominvestingintheproject.Asaconsequence,theBoardfocusedmoreofitsattentionon raisingcapitalfromthenonfarmingcommunity. Manybelievethatmanyinitialcommunityinvestorsbasedtheirdecisiontopurchasesharesonthe reputationandleadershipofthecoopBoardwhosememberswererespected,successfulfarmersand localbusinesspeople.Forothers,theriskoftheinitialinvestmentwasoffsetbytheirdesiretoretainan importantbusinessinthecommunity.Theserangedfromdoctorsandlawyerswhosawthecentralrole thegrainterminalplayedinthecommunity,totheownerofthefarmimplementsstoreandtireshop, whosebusinesseswouldsufferfromtheclosureoftheterminal. Clearly,theterminalwouldprovidebenefitstothesurroundingcommunities.So,thecommitteedrew upanagendalistingallthesurroundingtownstheyweregoingtovisitoverthesixweeks,finishingin Westlock.Theymadesuretoinformallthecommunitynewspapersoftheirintentionsandtospreadthe word.Bythistime,thecommitteewasalreadygeneratingpositiveprintandradiomediaattention.The greaterWestlockcommunitywaswellversedintheproject’srationaleandleadership.Tothisday,the foundersattributemuchoftheirsuccesstothecrucialrolethemediaplayedinsupportingtheproject anditscapitalcampaign. Overthesixweeks,theBoardmemberspulledoutallthestops.Theyheldoneononemeetingswith communitymembers,goingoverthebusinessplanandmemorandumofofferingtimeandtimeagain.
TheypresentedtheirbusinesscasetotheChamberofCommerceandtotheRotaryClub.Theyputadsin thepaperpromotingthesharesandheldinvestorregistrationmeetingsineachofthesurrounding communities. Despitetheseefforts,withoneweekremaininginthecapitalcampaign,only60%ofthecapitalhadbeen raised.Nervesandtensionswerehigh.Afteralmostafullyearofeffort,itwasn’tuntiltheverylast weekofcampaigningthatinvestorsstartedtosignup.Theteamwasabletoraise$200,000inthelast weekand$200,000onthelastdayofthecapitaldrive.Thisbroughttheirtotalequityupto$1.2million, exceedingexpectationsbyover$200,000.(Thefoundersbelievethathavingadefinedrateofreturnof 7%wasimportanttothesuccessofthepreferredinvestment.) Afterthisimpressivemembershipdrive,theywereabletoincorporateonAugust23,2002andpurchase theterminal.Initially,Agricoretriedtoselltheelevatorfor$1million.Butwiththedeadline approaching,AgricoreagreedtoselltheelevatortoWTLfor$200,000. Despiteraisingthenecessaryamountofcapital,WTLstillhadadifficulttimesecuringaloanwitha financialinstitution.With$1.2millioninequity,thegroupsoughta$400,000loantocovertheentire workingcapitalitwouldneedforinitialoperations.Severalattemptstoaccessaloanfromthelarge bankswereunsuccessful.Eventually,basedonthestrengthandreputationofitsBoard,WTLwasableto doadealwithAlbertaTreasuryBranch(ATB).(Atfirsttwolendershadcomeforward:theAlbertaFarm ServicesCorporation(AFSC)andATB.However,duetocontinuedwranglingbetweenthetwo institutionsoverwhohadprioritypaybackrights,theATBassumedthewholeoftheloan.Dealingwith onefinancierprovedmucheasierthanworkingwithtwo.) Duringtheinvestmentdrive,DaveFelstadwasinconstantcontactwiththegeneralmanager,BobHeck, fromPrairieWestTerminal.BobwaslookingforachangeandmovingtoWestlockbroughthimcloserto hisdaughterandgrandchildren.InSeptember2002hemovedtoWestlock,bringingwithhiman immenseamountofleadershipandexperiencenottomentionpastexperiencewithacommunityrun terminal.Bobunderstoodtheimportanceofhavingstrongfinancialleadershipandplanningfromthe beginning,sohehiredStephaneGervais,aregisteredaccountant,whobroughttoWTLtheessential skillssetofacontroller. AfterWTL’sfirstyearofoperations,investorsreceivedadividendof7%.Communityshareholderswere verypleasantlysurprised.ManyconfessedtotheBoardthattheyhadviewedtheirshareinvestmentasa writeoff:“Isawitisagranttoaproject,Ineverexpectedtoseeanythingback.”Sincethedividendwas issuedjustwhenholdersofstockmarketshares,mutualfundsandRRSPssufferedterriblelosses,the BoardhadlessdifficultyissuingasecondshareoffertofinanceWTL‘sexpansion,includinganexpansion ofitsrailline,anewsteelterminal,andanadditionalsteelbinaswellascleaningcapacity.Allofthese upgradeswouldimproveefficienciesandenhancethevalueofthegrain.Thisisthethirdoffour expansionplansandwillbecompletedbythelatefallorearlywinterofthe20092010cropyear.Afinal infrastructureexpansionphaseisplannedtobeginin2012. Currently,WTLisownedby239shareholders,ablendoffarmersandbusinesspeople,predominately fromtheareasurroundingtheterminal.WestlockTerminalsprovidesregularreturnstoshareholders throughthedividendyieldsoftheClass“C”sharesaswellastheincentiveyieldsoftheClass“D”shares.
WTL’scurrentgrowthstandsatabout15%peryear:asignificantturnaroundforaterminalthatwas deemedsubstandardandonlymarginallyprofitableunderAgricore’scontrol. TheBoardisalmostasdiverseasthemembership,comprisingindividualswithabroadrangeof backgrounds.Theyagreethatitisinthebestinterestofallstakeholderstoensurethebusinessis profitable,progressiveandgivesbacktothemembers.Unlikeprivatecorporationsinwhichoneortwo individualsdrivetheprocess,thecooperativeBoardneedsexcellentleadershipanda“reasonably coherent”BoardofDirectors.TheBoardgoestogreatlengthstonominatenewBoardmemberswho havegoodstrongleadershipandadiverseskillsetincludingbusinessplanning,accounting,investment, farmmanagement,andgrainshipping. WTLhasutilizedcapitalinvestmentfromthecommunitytomaintainaprofitableoperationinWestlock andtoevenupgradeandexpandoperationsandfacilities.Thiscommitmentfacilitatedtheviabilityof localinfrastructure,ensuredcontinuedrailconnections,andinadditionprovidedinvestorsapositive returnontheirinvestment.Theirrapidgrowthcontrastssharplywiththeexperienceofothergrain terminalsacrosstheprairies. TheCompetitionBureauhadrequiredthatAgricoresell,notclose,sixterminalsintheprairieregions, includingtheWestlockterminal.Unfortunately,theterminalsinRycroftandFalher,whilesoldinitiallyto farmergroups,havesinceshutdown.TheBawlfelevatorhasbeenpurchasedbyConAgraandisfocused exclusivelyonmaltbarleys.GuadinandKillamcontinuetooperateunderlocallyowned,limitedliability companies:inKillam,GreatNorthernGrains,andinGaudin,ProvidenceGrain.Afuturecomparative studyontheadvantagesanddisadvantagesofthecooperativeandthelimitedliabilitycompany,in threecommunitieswithrelativelysimilarcontexts,wouldbeveryrevealing.
Roleofintermediaries
TheWestlockgroupbenefitedfromthesupportofMarieGallant,thethenExecutiveDirectorofthe CommunityFuturesoffice.Marieplayedseveralkeyroles:
Helpedwithbrainstorminganddevelopingthebusinessconcept.
Believeditwasaviableventureandofferedencouragementwheneverpossible.
HelpedconstructtheBoard.
Assistedindealingwithlawyers,insurancecompaniesandfinancialinstitutionsandMarie’s backgroundincommercialbankinghelpedsecurefinancing.
Keptthemedia,RotaryClubandChamberofCommerceinvolvedatallstages.
Offeredadministrativesupport,suchameetingroomandphotocopyingservices.
KnewtostepoutwhentheyorganizedacompetentBoardandgeneralmanager. WestlockTerminalsalsobenefittedsignificantlyfromthesupportofMerleGood,ataxspecialistfrom AlbertaAgricultureandRuralDevelopmentandBrianKaliel,agovernmentagriculturetaxspecialistand corporatelawyerwithexpertiseinthecooperativemodel.Asmentioned,MerleandBrianhadworked closelytogetherinhelpingtodrafttheAlbertaCooplegislationwhichprovidedforNewGenerationCo ops.Workingwiththesteeringcommitteetogetherandsingularly,theyhelpedguideWTLtobecome thefirstexampleofaNewGenerationCoopunderthenewAlbertalegislation.SOMECOMPARATIVEISSUES TheExperienceofBeiseker,Alberta ThesituationofthecommunityofBeiseker,AlbertaissimilartothatofWestlockinmanyrespects. Viterra,alarge,diversifiedCanadiangrainhandlerthatoriginatedinthemergeroftheSaskatchewan WheatPoolandAgricoreUnited,closeddowntheterminalinBeiseker.Thisobligedproducerstotravel toothertownstodelivergrain.Thecurrentterminalisingoodshapeandlocalfarmerswouldliketobuy it,butViterraisunwillingtosell.ItwillbeinterestingtowatchhowBeisekerovercomesitschallenges. TherearealsosomeveryinterestingdifferencesbetweenWestlockandBeiseker.ForBeiseker: TheWestlockCoopBoardModel TheWestlockTerminalBoardmodelhasbeencriticizedbysomeothercooperativeboardsbecauseit doesnotpaycompensationtoitsboardmembers.ManyWTLBoardmembersbelievethatavoluntary Boardisveryimportanttothecoop’ssuccess.Theyfeelthatindividualscommittedtothecooponly requiresmallyearlyperdiems,paidonlyiftheorganizationisfinanciallysuccessfuloverthefiscalyear. RepresentationfromallsharetypesisincludedontheWTBoardtomaintainequalrepresentation.A minimumofsixmembersoftheBoardareelectedbytheproducerswhodelivergraintotheelevators (Class‘A’Shareholders).Inaddition,40%oftheBoardmustbeelectedand/orappointedbycommunity investorswhodonotholdvotingpower(Class‘B’and‘C’Shareholders).Asaresult,theBoardismade upofprofessionalsandfarmersfromthecommunity. Pros Cons x Goodgrainmixandtonnage,with productiontonnagesimilartothoseofthe Westlockarea.Beisekerisoneofperhaps onlytwoorthreeareasinAlbertawhere anindependentlyownedgrainterminal likeWestlock’swouldbeviable. x Significantgapinservicetotheeastof Beiseker. x Currentfacilityisgoodshape,mostlysteel bins. x Goodaccesstoraillines. x Motivatedgroupofproducerswith, interestingly,asurprisingnumberof youngerfarmerswhencomparedto Westlock. x Viterradoesnothavetosellthefacility,as AgricorewasobligedtoselltheWestlock elevatorbytheCB. x Thereareseveraloptions:theycantryto purchaseterminalagain,buildanother terminal,orcreateaproducercardelivery system. x Thereisnosettimeline,reducingthe senseofurgencythatdrovedevelopments inWestlock. x Smallercorecommunity.WhileWestlock drewitsmembershipfromsurrounding smallercommunities,thecoreofits membershipisfromtheimmediate Westlockarea.Beisekermayhavetodraw membersfromawiderarea
BoardmemberscansitontheBoardforamaximumofsixyears(threefullterms).ElectiontotheBoard isstaggeredsotherearealwaysnewandoldmembers.Theyrecognizethatsixyearsisashorttimetosit ontheBoardbutbelievehavingnewDirectorshelpstheBoard,itsmembersandemployeesstay focused. Opportunitiesandchallengesforreplication Thereisaclearcontradictioninattemptingtoreplicateacoop–itisimpossibletoreplicatetheexact economicandsocialconditionsandcontextthatgaverisetoWTL.Therewereseveralimportant milestonesthatmakesWTLauniqueexampleanddifficulttoreplicate.Oneofthemostimportantwas thatCompetitionBureauCanadarequiredAgricoretosellthegrainelevator(Seeoriginaldecisionhere http://www.competitionbureau.gc.ca/eic/site/cbbc.nsf/eng/00387.html).Asaresult,WTLwasableto purchasetheelevatorforafractionoftheaskingprice.Also,organizerswereabletosecurealoanwith ATBbecauseofthestrengthandreputationoftheinitialBoardmembers.Lastly,theBoard’sabilityto raisecapitalintheinitialshareissueisindicativeofthestrongcommunitysupportthecoopenjoyed. WhatWorkedForWestlock WhileWTLmaynotbereplicable,therearesometransferablelessons: a. Tenaciousleadershipisneeded.Identifyleadersandgivethemasmuchsupportaspossible. b. Makecertainthefoundingmembershavethecommunitysupportnecessarytoraisesufficient capital. c. Determinehowmuchyouwantthiscoop.Willthesignificantsacrificebeworththeeffort? d. Identifywhatyouknowand,moreimportantly,whatyoudon’tknowaboutyourbusiness.Ifthereis anareayouareunsureof,findanexpertwithinthecommunityandgethim/herinvolvedinthe decisionmakingprocess. e. Examinealltheoptionsforraisingcapital.Willbusinesses,municipalities,and/orindividualsinvest? Ifthereareonlyafewmajorinvestors,thecooperativemodelmaynotbethebestoption. f. Examineopportunitiesforallianceswithotherbusinessesandcooperativesifitbuildsthebusiness case. g. Seekseedcapitalfrommunicipalandcountygovernments. h. Tourothercommunityownedinitiatives. i. Getanindependentpartytoevaluatethebusinessopportunity. j. Setareasonabletimeline. k. Boardshouldsellsharestogaincommunitysupport. l. GetmediaandbusinessgroupsliketheRotaryandChamberofCommerceinvolvedintheearly stages.Keeptheminformedthroughouttheentireprocess. m. Identifybusinessesinthecommunitythatwillbeimpactedbythesuccessorfailureofyour organization,andgettheminvolved. n. Beastuteoflegaladviceaboutcoops.Notalllawyersunderstandpotentialcooperativestructures thoroughly.Findalawyerwithcoopexperience. o. InitialBoardmembersmustbelieveinthecoopandbewillingtopurchasesomeofthefirstshare offeringtocoverstartupcosts. p. Hirecompetent,experienced,andmotivatedmanagement(includinganoperationsmanagerand financialcontroller).
APPENDIXI:COMPARISONOFSHARECLASSES
UnderthenewAlbertaCooperativesActof2001,differentclassesofsharesbecamepossible.WTL establishedasharestructurethatenabledittoaccessinvestmentcapitalfromthebroadernonfarming community.AsWTLwasthefirstcooperativetousedifferentshareclassesunderthenewlegislation, thegrouphadtoforgenewground.Fivecategoriesofshareswerecreated.Eachclasshasimplications fortheothers.Itwasachallengedeterminingtheclassesandtheirstructure.SeeAlbertaCooperatives Actathttp://www.acca.coop/ABCooperatives.pdf Sharepricingrequiresknowinghowmuchcapitalneedstoberaisedandunderstandingtheaudience thatisexpectedtobuy.AsafoundingBoardmembernoted,“Youdon’twanttosetthepricetoohigh. Youneedconfidencethatyouarenotgettingtoomuchmoneybutonlywhatisneeded....Youneedto determinehowmuchcapitalisneededandhowmanypeopletherearetodrawfrom.” Anotherissuetoaddressistherightsofshareholdersintheeventofthecooperative’sdissolution. Whenstarting,peoplearemostconcernedastowhathappensifyoufail.Buttheyshouldalsobe concernedaboutwhathappensiftheorganizationsucceeds.(BoardMemberInterview) Asynopsisofthesharestructurefollows.AlsoseeAppendixIII:ComparisonofShareClasses. Class‘A’Shares Onlyholdersofthesesharesaremembersofthecooperativewiththebenefitsthatattachtoco operativemembership(i.e.,onemember,onevote;eligibletostandforelectionontheBoard;the member’sshareofprofitsisbaseduponthevalueofgraindeliveredtotheterminaloverthefiscalyear). Furthermore,deliverycontractsareonlyavailabletothosewithClass‘A’Shares(althoughnonmembers mayalsodeliverwithouttheaforementionedmemberrights).Consequently,membersaregrain producers.ClassAsharessetat$2000andamembercanholdonly1Class‘A’Share.Memberswho wishashareofprofitsbasedondeliveryofgrainareofferedClassDSharesforthispurpose. Class‘D’Shares OnlythosewhoholdorareapprovedtoholdClass‘A’SharesmaypurchaseClass‘D’(orDelivery)Shares. IftheBoardsodirects,theremayalsobearequirementthattheClass‘D’shareholdershaveenteredinto deliveryrightscontractswiththecoop. InWTL,deliveryrightsandobligationswerenotattachedtoshares(asisthecaseinsomenew generationcooperatives).However,theabilitytorealizepatronagerefunds2onlargervolumesofgrain deliverytothecooperativeisenhancedbytheownershipofadditionalClass‘D’shares.Toaccomplish this,theholdersofClass‘D’sharesareentitledtoreceiveasurplusinproportiontotheirshareof businesswiththecooponcetheClass‘C’shareholders(seebelow)havereceivedtheirdividends.More Class‘D’sharesentitletheshareholdertosurplusonlargertotaldeliveriestothecooperative.WTLis limitedtopayapatronagedividendupto25%oforiginalinvestmentoftheClass“D”shareholders. 2 PatronagerefundsincooperativesareashareofthesurplusthecooperativerealizesattheendofthefiscalClass‘E’Shares Shareswereissuedtoraisefundsfordevelopmentofthecooperative(e.g.,feesforlegalcounsel,initial costsofhiringageneralmanager).Thebudgetforthesedevelopmentcostswas$120,000.120shares wereofferedat$1,000pershare. AstheClass‘E’sharesweresoldwhenthecooperativeconceptwasjustbeingdeveloped,theBoard determinedthatalaterconversion(withinoneyearofregistrationofthecoop)wouldprovidea2for1 valueforthesesharesinrecognitionoftheassociatedrisk.Inotherwords,
OneClass‘E’sharecouldbeconvertedtooneClass‘B’share(@$2,000pershare);or
OneClass‘E’sharecouldbeconvertedtooneClass‘D’share(@$2,000pershare;theshareholder mustbequalifiedtoholdClass‘D’Shares);or
FiveClass‘E’sharescouldbeconvertedtotwoClass‘C’shares(@$5,000pershare). AlongwithClass‘C’shares,theClass“E”shareswouldhavepriorityintheeventofthecoop’s dissolution.However,allclass‘E’shareshavesincebeenconvertedtoeitherClass‘B’or‘C’sharesas outlinedabove.AsClass‘E’shareswereusedtoraisetheveryhighriskcapitalusedforthestartupof thecoop,thereisnointenttoissuethesesharesagain. Class‘C”Shares TheBoardrecognizedthatitwasimportanttohavepreferredsharestoraisecapitalastheywillattract moreinvestorsthancommonshares.Accordingly,intheeventofthedissolutionofthecooperative, followingthepaymentofprimarydebt,Class‘C’shareswouldhaveprioritypayoutstatus. Settingthevalueofthesharesrequiredunderstandinghowmuchcommunitypeoplewouldpay.Shares wereissuedat$5,000each.“Somepeopleboughtone‘C’shareandhopedthatthecooperativewould besuccessful.Buttheywerepreparedtotaketherisk[thatitwouldn’t].Otherslookedatthepeople behinditandbelievedthattheyknewwhattheyweredoing.”Withaninitialtargetof$1million,200 parvaluevotingClass‘C’series‘I’wereofferedandsold. Settingthedividendrateforthepreferredshareswaschallenging.(Deliberationsrequiredthree meetingstosettherateanddetermineifthereturnshouldbecumulativeornoncumulative.)TheBoard determinedthat7%wasareasonablerateofreturnfortheriskinvolved.Alowerratewouldnotattract investors;whileahigherratewouldbeonerousforthecoop.AsoneBoardmemberputit:“At7%, moneyleavesthestockmarkettogointobanks;atlessthan7%,moneygoesintothestockmarket.”This wastheBoard’sassessmentin2002.Withlowercurrent(2009)interestrates,theinvestmentwouldlook evenmoreattractive. TheBoardmaydecidenottopayoutadividendoraportionofadividendforClass‘CI’sharesinany givenyear.However,iftheentiredividendisnotdeclared,shareholdersaccumulatetherighttothe outstandingamountofdividendsdue.Suchamountsshallnotcompounduntildeclared.Ifdividends werenotpaidwithinthefirstfiveyearsofthecooperative’sregistration,holdersof70%oftheClass‘CI’ sharescouldhavecalledforaretractionoftheClass‘CI’sharesorforthecooptoacquirethesharesat theparvalueplusdeclaredbutunpaiddividends.Theseshareswereavailabletomembersandnonmembers. InaccordancewiththeAlbertaCooperativesAct,Class‘C’shareholdersmayelect20%oftheBoardof Directors.OthervotingprivilegesofClass‘C’shareholdersalongwithotherinvestmentshareholdersare restrictedtospecificcircumstances,asdefinedintheCooperativesAct,suchasthoserequiringoneor morechangesintheWTLArticlesofIncorporation. Class‘B’Shares Thesegrowthsharesaretightlytiedtothecooperative’ssuccess.Theythereforeproducethehighest returnandhavelowerprioritythandoClass‘C’intheeventofdissolution.AsoneofthefoundingBoard membersnoted,“’B’Sharesmakethemostmoney;but...youcan’tcashin.”Theytradeatmarketvalue. Theseshareswereavailabletomembersandnonmembers. TheinitialSeries‘I’ofClass‘B’shareswereissuedat$2,000each.Dividendsaredeterminedbythe BoardofDirectorsandmayvaryfromyeartoyear.Initially,therateofreturnondividendswasmade equivalentpersharewithClass‘A’shares.However,thearticlestyingClass‘B’sharestoClass‘A’shares wereeliminatedsubsequentlybytheBoard.Itreasonedthatmemberswhowanttoparticipateinthe growthofWTLshouldpurchaseClass‘B’shares. ‘B’shareswerethemostdifficulttovalue.Aformulaforvaluationwouldhavebeenveryhelpful.
ACaseStudy 15
SSES
ClassAShares 3 ClassBShares ClassCShares ClassDShares ClassEShares Determinesw ho hasmembership andw ho has deliveryrights. Investmentshares Investmentshares Investmentsharesthat provideaddedreturnsfor delivery Investmentsharesthat fundedcostso fco operativedeve lopment bers only , nmem bers, th? Membersonly. Onl y oneshare per member. Aseriesmaybe issuedtomem bers, nonmembers,or both. Aseriesmaybeissuedto members,no n members,or both. Membersonly(mustholdor beapprovedtohold Class‘A’ sharesandmay requireentr y intodeliveryri ghtscontracts ) No r Parvalue Nonparvalue Parvaluefor‘CI’Shares Parvalue Nonparvalue price $2,000 $2,000foriniti al series‘BI’s ha res $5,000foriniti alseries‘CI’ shares $2, 0 00 $1, 0 00 o f UnlimitedinCl ass‘B’.Directorsmayfixa numberwithinseries subsequenttothe‘B I’series.
UnlimitedinCl ass‘C’,but‘CI ’ serieslimitedtomaximumof200 Unlimitednumberofs hares Maximumof120s h ares Transferable Transferable Sharee quivale nt Class‘B’ share s. Dividendsas maybe declaredbythe Boardfrom ti m eto time.Shares equivalentwith Class ‘A’shares. For‘CI ’series:7%ofprice. Dividendpaidifde claredby Board.If notdeclaredor notfully declared,rightstooutstanding annualdividendaccum ulates,but notatacompounded rate Participatei ns u rplusofgoo ds andservicessoldby shareholderto coopafter payme ntof div idendst o holdersofClass‘C’ Nonaccumulativedividends asdeclare dbyBoardfrom timetotime sitio n of op Atparvalue A t$2,000orhi gher
asmaybe determinedbythe Boardfrom
ti m eto time,plusallunpaid declareddividends. At $ 5,000 plus allunpai d declareddividendsa ndall unde claredaccumulated dividends. Atpricepaidt herefore,plusall unpai d patronagedividends declaredthere on. do n “Investment ShareCapital”document.
WestlockGrainTerminal: ACaseStudy ClassAShares 3 ClassBShares ClassCShares ClassDShares ClassEShares onsof c n of o p Redeeme dbycoop withinone ye a rof revocationo f membership Onlyafter fiveyears
elapsedsince issuance. Noobligationto acquiremorethan10 Class‘B’shares annually.
Onlyafter tenyearselapse dsince issuanceor iftherehavebee nno dividendspaidonsharesi nfir st5 years. Ifnodividendshavebee npa id, within5yearsofcoo p incorporation,avoteof70%of Class‘CI’s h ar eholdersmay requirecoopt oretract or acquiresharesanddeclare dbut unpai ddivide nds. Ifdividendspaidwithin5ye ars, norightofredemptionor retractionuntil10ye arsafter registrationdate,atwhichti me, thereisno obli gationforcoo p to acquiremorethan10Class‘C I’ Sharesannually. Anunlimitednumberof $2,000parval uenonvoting Class“D”Shar esissuedonl yto membersanddesignate d as classofinvestmentshares pursua ntto Se ction427of the CooperativesAct(Alberta) (theClass“D”Shares)Ifa n y Class“D”s har e sare redeemed, the yshallbe redeemablea ttheparvalue plusallunpaidpatrona ge dividendsdecl aredthereon. Convertedi ntoB,CorD withinayearo fthe coo p ’s incorporation Voting Limitedvoting Limitedvoting Nonvoting Nonvoting
ElectallBoard exceptthose representing
Classes‘B’and‘C’ shareholderswhen applicable. Class‘B’shareholders asawholehav ethe rightto elect 20%of Directors Class‘C’as aw h olehastheri ght toelect 20%of Directors None None eve nt of utio n PaidoutrateablywithClass‘E’ sharesandinprioritytoClass es ‘A’,‘B’,a n d‘D’shares PaidoutrateablywithClasses ‘A’and‘B’shar esafterClasses ‘C’a nd‘ E’s har e s PaidoutrateablywithClass ‘C’s haresandi npriorityto Class‘A’, ‘B,’a n d‘D’shares Convertiblew ithinone yearof Coop’s registration
to: ClassBat1:1 ClassDat1:1
4 ClassCat5:2 eholderhasaClassAshare a ndotherwisequalifiesforCla ssDshares
AppendixIII:NewGenerationCoops:
Resources
ChristopherD.MerrettM.,HolmesJ.,EggertB.,DirectoryofClosedMembershipProducerCo operatives:NewGenerationCooperativesandLimitedLiabilityCompaniesintheUnitedStatesand Canada,IllinoisInstituteforRuralAffairs,June2007.Epp,R–“TwoAlbertas:RuralandUrbanTrajectories,”AlbertaFormedAlbertaTransformed.Edited. MichaelPayne,DonaldWetherell,CatherineCavanaugh.Edmonton:UniversityofAlbertaPress.2006.
Epp,R.WeareAllTreatyPeople.UniversityofAlbertaPress.2008.Pp.165186. PublishedbyIllinoisInstituteforRuralAffairsStipesHall518WesternIllinoisUniversity1University CircleMacomb,IL614551390Email:[email protected]:www.iira.organdwww.value added.org Quotingfromthesematerialsfornoncommercialpurposesispermittedprovidedpropercreditisgiven. FirstPrinting:April2003 SecondPrinting:June2007 Printedonrecycledpaper
