Agrium Inc. (USA) (NYSE:AGU) is expanding its retail footprint with a deal to acquire more than a dozen stores from Cargill, a privately-held firm. The company didn’t disclose what it was paying to gain the ownership of the 18 retail outlets, but it did say that the stores generate $150 million annually. That should bring an immediate top line boost to Agrium after it closes the deal.
The stores that Agrium is acquiring from Cargill are located across the corn belt in the northern United States. This is a region that Agrium doesn’t already have much presence in and the acquisition could allow it to penetrate the region quickly.
According to Cargill, its priorities are not in the retail business, which is why it is selling its portfolio of retail stores. It said the sale will allow it to concentrate on its primary business of selling oil and grain seeds wholesale. Therefore, Agrium isn’t buying a business whose owner doesn’t want because it is unprofitable. Instead, it is buying a business that is not core to the owner but is core to its own operations.
Furthermore, the stores are located in a region that Agrium has massive growth potential in given its currently limited presence in the northern U.S. corn belt.
Business of serving farmers directly
Agrium Inc uses its network of retail stores to serve farmers through the provision of farm inputs and other agricultural solutions. The company’s portfolio currently includes over 1,400 retail locations. It also has plants, terminals and distribution centers across North America, South America and Australia.
Last year, Agrium generated $12 billion in revenue through its retail business, which was more than triple the revenue in its wholesale arm.
Potential high demand for crop inputs
Agrium is buying into the U.S. northern corn belt at a time when the Department of Agriculture is forecasting an increase of more than 6 million acres in acreage under soybean, cotton and corn. The increase in acreage should create high demand for crop inputs which Agrium sells.