Just as the noisy presidential campaign reached its October crescendo, the biggest, most bitter issue in farm country – Rabobank’s bid to buy Omaha’s Farm Credit Services of America (FCSA) – skidded to a quiet end.
FCSA’s 17-member board voted to abandon the deal Oct. 19.
Not even Rabo’s last-minute offer to toss another $150 million into this Dutch oven, upping its $600 million bid by 25 percent, could pull it from the fire.
Hot air? In fact, according to Omaha insiders speaking on background, the deal was largely cooked from the start – more than a month before Omaha’s July 30 announcement to sell its four-state piece of the Farm Credit System to the giant Dutch ag cooperative.
There was little “on paper” between Rabo and FCSA when Omaha management asked its board to approve the deal in June, explains one insider.
Directors hesitate. That first vote, one of at least three prior to July 30, showed the board clearly split over Rabo’s buy-in into Midwestern ag lending. The split remained until some directors “switched at the final vote” to give Omaha boss Jack Webster the green light to kiss Rabo.
But even then, some directors remained uncomfortable with the pending marriage.
Despite several explanations, they simply could not get a handle on Rabo’s unique ownership structure and what it meant for Omaha’s 51,000 shareholders and $7.8 billion of assets.
For example, Rabo operates in 35 countries, is owned by 328 Dutch banks, has 9 million customers, holds more than $500 billion in assets, and maintains a triple-A bond rating everywhere it does business. Yet this Top 15 global lender has no shareholders and pays no patronage.
Given that odd structure, Omaha insiders wondered what would happen if Rabo, post-Omaha purchase, ever dissolved. The answer: Rabo’s assets would go to charity.
Can’t blame ’em. Despite the boardroom worries, Rabo’s desire for Omaha made perfect sense.
Its $600 million, then $750 million, offer was a flat-out steal for a four-state banking territory with arguably the best technology and the best set of books in the Farm Credit System.
On top of that, of all FCS lenders Omaha possesses a diverse ag portfolio – cattle, hogs, soybeans, corn, wheat – and a center-of-the-American-universe base from which to launch lending raids into other FCS territories like Texas, Minnesota and Illinois.
And Rabo clearly had plans to do just that.
When it came to putting the specifics on paper, however, the deal quickly turned into a bowl of spaghetti.
$800 million. Of many hurdles, the biggest was Omaha’s legal requirement to buy its way out of the federated Farm Credit System.
The cost: an estimated $800 million, all shareholder money that Omaha, with board approval, had hoarded over the years.
Sound of silence. The tangle led to two tactical mistakes by Omaha and Rabo.
First, they imposed a gag order on all public discussion – especially with the press – by directors and managers on specifics of the sale.
The bosses claimed the Farm Credit Administration, FCS’s regulator, required silence until the deal was blessed by Washington.
Not so. According to FCA rules, “Neither the institution nor any director, officer, employee, or agent may make any untrue or misleading statement of a material fact, or fail to disclose any material fact, about the termination to a current or prospective equity holder.”
In short, anyone could talk (and directors did, on a one-to-one basis with concerned shareholders) but the talk had to be straight.
That self-imposed silence led to the second mistake. Omaha and Rabo failed to respond quickly and effectively when dissenting Omaha shareholders organized to oppose the sale in the district and in Congress.
That prairie fire, and counteroffers from AgStar, another FCS lender, to buy Omaha, delayed paperwork FCA needed to rule on the Rabo deal. The paperwork was never completed.
After a warm Sept. 30 House Ag Subcommittee hearing on what Omaha’s sale could mean to the Farm Credit System – no one from Rabo or Omaha testified – the deal was mostly fried.
Within two weeks, it collapsed.
But that doesn’t mean Rabo and Omaha won’t cook up something new. In fact, expect it.
(Alan Guebert’s Farm and Food File is published weekly in more than 75 newspapers in North America. He can be contacted at email@example.com.)
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