AgStar Financial Services is willing to top Rabobank Group's bid for Farm Credit Services of America by $50 million. But the question remains, is it able?
Jack Webster, Farm Credit Services' president and chief executive, does not think so.
"The last time I looked, AgStar doesn't have this money," Mr. Webster said in an interview Thursday.
In fact, even the $2.6 billion-asset AgStar acknowledges that it would need financial help to swing a deal for the much larger Farm Credit Services, which is based in Omaha.
Paul DeBriyn, Agstar's president and CEO, said it has lined up cash from allies that also oppose a Farm Credit lender's selling itself to a commercial bank.
"We have commitments in place through the Farm Credit System that allow us to remain a safe and sound institution and do this deal," Mr. DeBriyn said. He declined to say how large the commitments are or who made them.
On June 30, AgStar had roughly $363 million of capital, according to its earnings release. Last year shareholders authorized it to issue $100 million in preferred stock.
Mr. DeBriyn also said AgStar bid for the $7.8 billion-asset Farm Credit Services before July 30, when it agreed to sell to Rabobank.
But after the Dutch banking giant bid $600 million, AgStar stepped in with its $650 million offer.
Though he is skeptical, Mr. Webster said his board would weigh both offers. "Our fiduciary responsibility is to review" any potential counteroffer, he said. "As soon as we can see the official offer and convene our board, we will first and foremost look at this offer with our stockholders' best interest in mind."
The dueling offers have heated up the debate over whether the government-sponsored institution should be allowed to sell to Rabobank.
If it chose to do so, Farm Credit Services would have to pay an $800 million exit fee to the Farm Credit System Insurance Fund. That would reduce Farm Credit Services' capital from $1.3 billion to about $500 million.
Opponents of the deal argue that the exit fee would remove capital from the system that would otherwise help meet the needs of farmers and ranchers.
Alan Dillman, a farmer in western Nebraska who is a Farm Credit Services borrower and shareholder, expressed concern that Rabobank would put profit ahead of serving farmers.
"FCS of America is a good organization," Mr. Dillman said. "It has very dedicated and good people, and I want it to stay that way - as a Farm Credit System entity,"
Rabobank, which has $500 billion of assets, has no plan to increase its offer, according to spokeswoman Lynne Burns.
Sale to AgStar would result in a weaker institution, she said, because AgStar would have to borrow.
Rabobank's offer would give the average Farm Credit Services shareholder nearly $12,000 in cash, Ms. Burns said. For farmers in Nebraska, Iowa, South Dakota, and Wyoming, where Farm Credit Services does business, it would also mean expanded banking services from a global company that has long been an agricultural lender, she said. (Farm Credit System lenders may not accept deposits, for example.)
Mr. DeBriyn countered that the combined capital from Farm Credit Services' and AgStar's retained earnings would create a strong institution. He said shareholders stand to gain more from AgStar's offer because there would be a stream of future payments instead of a one-time payout.
The Rabobank deal has drawn interest in Congress. Last week South Dakota Sens. Thomas Daschle and Tim Johnson, both Democrats, called for hearings in the Senate Agriculture Committee. They also asked the Farm Credit Administration, the system's regulator, to hold hearings in the affected states.
But Rabobank and Farm Credit Services said hearings should not be held until the administration had approved the merger application and information had been mailed to shareholders for a vote.
Sen. Tom Harkin, D-Iowa, has also endorsed hearings, and the Nebraska Farm Bureau has written the Farm Credit Administration questioning the deal.
Though sale to Rabobank would put a giant international competitor in their backyards, bank groups have taken no position on the matter, though they have used the situation to again oppose the tax-exempt status of the Farm Credit System.
