The North American feed business that Viterra has now sold off was not only a non-core asset, but its profits had taken a big hit and its valuation had plummeted.
Back in 2010, the feed business brought in $16-million in earnings before interest, taxes, depreciation. Analyst projections for 2013 come in at only a quarter of that. And things had been so rough for the Canadian feed division that its goodwill was written down by $8-million last year.
Feed has been a rough business to operate for the past year and a half because input prices have skyrocketed. Things like corn, soybean meal and canola meal are now much more expensive, and that obviously cuts into margins.
For Viterra, selling this business wasn't very material. If the feed division's 2013 EBITDA comes in at $4-million, it would probably amount to only 1 per cent of the company total. Still, the response has been favourable because at least Viterra can now focus on its grain and retail businesses.
Although financial terms weren't disclosed, it's likely the new owners -- current management and Birch Hill Equity Partners -- got a good deal because Viterra wanted to part ways with the asset, and the outlook wasn't so great -- especially because there's overcapacity in the market, which has led to aggressive pricing.
This asset could be a steal for them. Just two years ago feed was a good business, and there's a chance that it could become one again. Viterra just didn't want to wait it out.
However, the firm won't totally lose out if feed rebounds. The latest sale is only for the North American business, so Viterra will keep the New Zealand division. That's likely because the company just recently opened a huge feed plant in Auckland that had been started by ABB, which Viterra acquired in 2009.