After weeks of harangues between the commercial banking industry and Farm Credit System members over its proposed acquisition, Farm Credit Services of America has decided to back out of its purchase agreement with Dutch-based Rabobank International.
The agreement would have marked the first sale of a member institution to a private lender in the 80-year history of the Farm Credit System, the national network of farmer-owned federal land banks and farm credit services cooperatives.
Rabobank had recently increased its purchase price to $750 million for the Omaha-based Farm Credit Services, a 25-percent increase over its initial offer of $600 million. Farm Credit Services of America serves farmers in Iowa, Nebraska, South Dakota and Wyoming.
Farm Credit Services of America said it made its decision because of the increasing likelihood of a delay in approval for the transaction and other factors.
“We are disappointed by the decision of FCSAmerica’s board, given that we had significantly increased our offer in order to clearly demonstrate our commitment to completing the transaction,” said Cor Broekhuyse, head of the Americas for Rabobank International.
“We strongly believe our partnership would have offered tremendous benefits to FCSAmerica customers in terms of new products, improved services and, of course, a considerable financial payment to stockholders. It is unfortunate that the board’s decision means that the stockholders’ right to vote will be denied.”
The Farm Credit Council, the national trade association representing Farm Credit institutions, said the decision to terminate the acquisition agreement was a step that “reaffirmed the value of the cooperative’s mission of service to Midwestern farm and ranch families.”
“We congratulate the (Farm Credit Services of America) board on taking this action and realizing the importance of maintaining Farm Credit’s core principals – farmer-ownership and its mission of service to rural America,” said Farm Credit Council President and CEO Kenneth E. Auer.
Rabobank officials said they believed criticism from Farm Credit Council members and others helped sink the purchase agreement.
“We believe FCSAmerica’s board may have been subject to undue pressure by certain FCS institutions and other third parties whose actions and statements were motivated primarily by fear of having to compete with a combined FCSAmerica-Rabobank entity,” Broekhuyse said.
“We believe this is a short-sighted response and not in the best interests of American agricultural producers or rural customers. Rabobank is firmly committed to expanding its investment in the U.S. market and helping to create a more competitive financing environment, and believes that its superior products will benefit American farmers and ranchers.”
Farm Credit Services of America cited "unprecedented activities of third parties during the so-called quiet period of the regulatory process" as one of the other reasons for its decision. Others included a clarification in regulatory procedures that could affect its allowance for loan losses and changes in funding practices by AgriBank, which provides funding to FCSAmerica.
Farm Credit Council's Auer said the collapse of the agreement “highlights the challenges facing Farm Credit as it works to fulfill its mission. Agriculture is evolving and the needs of farmers, ranchers and rural communities are changing. Farm Credit should have the flexibility – either through changes in regulatory restrictions or through changes in federal law – to meet those changing needs.”
But the commercial banking industry, which was highly vocal in its support of the FCSAmerica acquisition, said the Farm Credit System should not be able to use the collapse of the agreement as an excuse to expand its lending authority.
“Farm Credit Services of America, by rejecting the offer from Rabobank Group to sell and leave the Farm Credit System, must accept that there are limits to what FCS institutions can do,” said John Blanchfield, director of the American Bankers Association’s Center for Agricultural and Rural Banking.
“Congress granted them a special-purpose charter that was designed to meet a clearly defined need – lending money to farmers, ranchers and rural homeowners.”
Blanchfield said the decision by the FCS of America board “illustrates that it is more comfortable remaining a special-purpose, tax-advantaged, government-sponsored lender with a limited, federally mandated mission. Rabobank offered them the opportunity to offer a broader array of products and services, and that offer has been rejected.”
Any Farm Credit System institution that wants to expand its services should be allowed to exercise its right to leave the system if that is what the stockholders decide to do,” said Blanchfield. “The ABA believes that existing statute provides a fair, clear and understandable process for institutions to follow if they wish to leave.”
Now that the proposed merger is dead, Rabobank leaders said they plan to significantly increase its investment in American agriculture by systematically expanding its Rabo AgriFinance and Rabo AgServices divisions, and by making further acquisitions in the U.S. agriculture sector.
Rabobank, which has been operating in the United States for 25 years, already has a sales network of over 80 locations in 20 states from which it provides ag finance services.
“Based on the positive feedback and interest we’ve received from midwestern farmers and ranchers, we are particularly looking to build our presence in the Midwest,” said Broekhuyse. “But we have a long-term strategy to serve farmers and ranchers throughout the entire United States.”