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Where are the CHS boss' priorities?

SCOBEY, Mont. - I would like to make a few comments in regard to CHS Chief Executive Officer John Johnson's speech in March at a Global Business Connections meeting in Fargo, N.D. The speech was referred to in the March 16 issue of Agwek by Mikke...

SCOBEY, Mont. - I would like to make a few comments in regard to CHS Chief Executive Officer John Johnson's speech in March at a Global Business Connections meeting in Fargo, N.D. The speech was referred to in the March 16 issue of Agwek by Mikkel Pates ("CHS boss: Grain ethanol has future," Page 26).

I take exception to Johnson's comments that a Cenex Harvest States-Farmland Industries merger would have been a success. He must have forgotten that Farmland had $1.46 billion of debt to $1 billion in equity and declared bankruptcy in a year and a half after the merger failed. The merger was nothing more than a bailout of Farmland by Cenex Harvest States that would have taken down what is now CHS.

What about the huge tax case with Terra Resources for $410 million Farmland won but could have lost? Cenex Harvest States management and board members were willing to risk their company before the case was settled.

Farmland's farmers lost all $911 million of equity, and I think Cenex Harvest States farmers would have lost their $1.1 billion in equities and their company had the merger passed.

Farmland was to come in as an equal to Cenex Harvest States when there was nothing equal about it. The top 20 executives of each company would get an additional year's salary just for the merger passing. Harry Cleburg and Noel Estenson, the CEO's, would get three times their annual salary or $3 million to $5 million each.

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Did management have a reason to get the merger passed? Farmland was to get the CEO, CFO, half the board and their high-spending ways plus the new headquarters in Kansas City, Mo. Johnson was not going to be CEO for two years if the new company lasted that long. The buyout option to get rid of him also could have been exercised.

Also, if this merger was a good plan, why didn't Cenex Harvest States buy the assets they wanted when they were sold for pennies on the dollar after Farmland failed? Cenex Harvest States bought very little. Nobody wanted oil refineries at that time because of the huge expense of updating them to meet EPA standards. Owning nitrogen fertilizer manufacturing is a cyclical business risk and taking on Farmland's seven nitrogen manufacturing facilities would have been a huge risk as evidenced by CHS selling its share of CF Industries a couple years ago. If Cenex Harvest States wanted Farmland Foods, why didn't John and team step up to the plate and buy it? What about all the high-dollar grain assets that Cenex Harvest States didn't want and would have had to eat? On top of that, Cenex Harvest States basically gave away a profitable GTA Feeds to Land O' Lakes to keep it quiet for not opposing the merger.

As to more recent events, the $157 million CHS has spent so far buying farmland in Brazil totally baffles me. Johnson says CHS needs the land so it can supply our world customers with a continuous supply of commodities. Why can't our own farmer-owners in the U.S. supply soybeans year-round to our world customers? It doesn't make sense to buy farmland with the Japanese and grow commodities that compete with your farmer-owners when none of the profits go back to them. It goes under "unallocated reserves" that stay with the company. How does CHS owning farmland increase value to their farmers' products when the farmers get none of the profits? Where's the board?

-- Steve Carney

Editor's Note: Carney, of Scobey, Mont., served on the Harvest States board from 1988 to '98 and the Cenex-Harvest States board from 1998 to '99.

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