USDA helps Michigan sugarbeet
growers purchase processing plant
VALUE-ADDED CORNER
By Richard E. Leach, Director of
Community and Government
Relations, Michigan Sugar Company
e had just finished
supper at Imperial’s
hunting lodge, about
10 miles outside the
small southwest Texas
town of Hebbronville. Imperial Sugar
Co. had invited the executive board of
the Great Lakes Sugar Beet Growers
on a quail hunting trip in January
2000. Imperial, owner of Michigan
Sugar Co., had a reason for the hunting
trip: to ask if the growers would
consider forming a cooperative to
explore the feasibility of purchasing
Michigan Sugar Co. From that weekend
forward, the Great Lakes Sugar
Beet Growers Association would never
be the same.
The first step in the exploration
process was to find the best attorney
with experience in creating sugar cooperatives.
Attorney Randon Wilson, Salt
Lake City, Utah, was hired to organize
the feasibility of a purchase and move
the project forward.
The growers appointed a steering
committee. Attorney Wilson went to
work almost immediately with a trip to
Imperial’s home office in Sugar Land,
Texas, to establish himself as the buyout
attorney for the growers and to
gather information. Imperial told him
that they would not set a price on
Michigan Sugar the growers would
need to make an offer.
A financial modeler was hired who,
along with Wilson, began collecting
financial information to evaluate the
value of Michigan Sugar. Financial
information was difficult to obtain and
even more difficult to understand. Part
of the problem was that in 1984,
Michigan Sugar had been sold by the
Flegenheimer family to Savannah
Foods & Industries. Imperial purchased
Savannah Foods in 1997,
including Michigan Sugar. After the
purchase, Imperial moved all the
accounting to its home office in Sugar
Land, Texas.
Imperial became more difficult to
work with. The president and CEO of
Imperial was telling the growers that
the buyout was never going to work
because they couldn’t raise the money.
Money to fund the project became a
real problem. Because one of Michigan
Sugar’s factories is located in Michigan’s
Huron County, the Huron County
Economic Development Corporation
provided a $50,000 matching-fund
grant to help with attorney expenses. In
early 2001, the growers received a
$210,000 Rural Business Enterprise
Grant (RBEG) from USDA Rural
Development. This matching-funds
grant was for the feasibility study.
In the fall of 2000, Michigan Sugar
Beet Growers Inc. was formed as a
cooperative. Shortly afterwards, a draft
offer (in the form of a letter of intent)
was sent to Imperial. We received no
meaningful response and, in mid-
January of 2001, Imperial and their
subsidiaries, including Michigan Sugar,
filed for protection under Chapter 11
bankruptcy.
The growers (under contract) had
delivered the 2000 sugarbeet crop and
received approximately 70 percent of
the estimated value of that crop.
Growers were considered “critical vendors”
under the bankruptcy and could
be paid at Imperial’s discretion. At this
time, a bankruptcy attorney was hired
to represent the growers.
The growers were reluctant to sign
a 2001 contract to grow sugarbeets for
Imperial, because of the bankruptcy
and the uncertainty of receiving the
balance of payment for the 2000 crop.
A sugar company without sugarbeets
loses value fast. With the real possibility
of not having beets to process, the
new cooperative was able to negotiate
the letter of intent with four separate
agreements and a lease agreement in
the event the purchase could not be
completed by harvest time. The negotiated
purchase price was $83.5 million
and the agreements were approved by
the bankruptcy court.
The cooperative successfully contracted
growers to produce the 2001
crop. After the contracting was completed
(114,000 acres), Imperial
informed the cooperative that it could
not continue to run Michigan Sugar,
rebuild the factories and pay the growers
the remaining balance owed them
for the 2000 crop. Agreements were
finalized and the growers were paid all
but $2.44 per ton (approximately 7
percent of the total value) owed them
for the 2000 crop.
In June of 2001, a co-op stock offer
was made to area growers for $200 per
share. Each share required, and
allowed, one acre of sugarbeets to be
delivered to the cooperative.
That same month, the cooperative
received approval of a $5 million loan
from the state of Michigan, at no
interest, for five years, to be used for
the purchase of the company. In
August, a $500,000 matching funds
grant was approved by USDA Rural
Development for use of startup operating
expenses.
The sale of shares was progressing
slowly and the cooperative was having
trouble raising capital for the
purchase. Imperial Sugar changed
chief executive officers and the new
CEO wanted to sell Michigan Sugar.
In a meeting in October, the new
CEO offered to lower the purchase
price by $20 million (making the new
price $63.5 million) and to finance
the transaction. This was exactly
what the cooperative needed and the
share offering became over subscribed.
The purchase was completed
on Feb. 12, 2002.
The first year under cooperative
ownership, Michigan Sugar Co. produced
a record amount of sugar
over 630 million pounds. The 2003
crop that has just been harvested is
also an excellent crop.
Michigan Sugar Company provides
over 350 full-time jobs and
1,000 seasonal jobs. The company
adds $180 million to the Michigan
economy.
The grower-owners and employees
of Michigan Sugar Co. are proud to
produce pure and natural Pioneer®
Sugar with only 15 calories per teaspoon.
