Sun Gro Horticulture Income Fund recently announced that its wholly owned subsidiary, Sun Gro Horticulture Canada Ltd. (Sun Gro), has signed an agreement to buy certain assets of The Scotts Company Professional Business Group.
Effective September 30, 2004, the pending agreement provides for Sun Gro to purchase the U.S.-based Metro-Mix and Redi-Earth professional growing media brands from The Scotts Company. The majority of production of the brands will be relocated to Sun Gro facilities in Elizabeth City, N.C.; McCormick, S.C.; Quincy, Mich.; and Pine Bluff, Ark. Modest volumes will be produced at other Sun Gro facilities in the United States. Sun Gro will maintain Scotts’ distribution program and will continue to use the same growing media formulas, ensuring that growers who use the brands will not need to interrupt or modify their current cultural practices.
“This transaction is directly in line with our strategic focus on the professional grower market,” said Mitch Weaver, president and CEO of Sun Gro and a Trustee of the Fund. “The addition of these quality brands to our product offerings will strengthen our position in the bark-based media segment of the professional market and further solidify our relationship with several of our key distributors.”
Sun Gro will pay $6 million (U.S.) to acquire Scotts’ professional growing media business and estimates that the acquisition will increase its annual sales by $16-18 million (Canadian). Short-term debt associated with the transaction will be financed through the company’s acquisition line of credit. “We expect that the acquisition will be accretive to our unit holders commencing late this year,” said Weaver. “The new business will allow us to use the slower summer season to add capacity at several of our U.S. plants. We will be spending about $2.5 million (U.S.) to upgrade the capacity of the affected plants. However, other than the capital expenditure, it is not anticipated that significant additional fixed costs will be added to our cost structure.”
Korbin Riley, vice president of Scotts Professional Business Group said that the transaction allows Scotts to focus on its core competencies. “Our greatest strengths in the professional horticultural market lie in the areas of fertilizer and plant production products. The sale of our professional growing media assets to Sun Gro will allow Scotts to successfully focus on our fundamental product categories and drive our future success.”
Riley emphasized that both companies will work together to ensure a seamless transition.