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Agway Energy Products LLC agreed Monday to sell its assets to Suburban Propane Partners for about $206 million, subject to U.S. Bankruptcy Court approval.
Agway Energy customers won't notice any difference in their service if the deal goes through, said Robert L. Plante, vice president of finance at Suburban Propane, based in New Jersey.
"The change should be transparent to customers," Plante said.
The deal was signed Monday, but it is not final until an auction seeking higher bidders is held in bankruptcy court. Agway is asking the court to hold a hearing to set bidding procedures Nov. 20, and to conduct an auction Dec. 18, said Stephen Hoefer, speaking for Agway.
If the deal goes through, Agway Energy will retain its name and continue operating as usual, Plante said. Agway estimates it will receive net cash proceeds of about $175 million from the sale, which involves nearly all Agway Energy's assets and business operations.
Agway Energy has about 500,000 customers, while Suburban Propane has about 200,000 customers in the same territory, Plante said. While there might be some overlap, Plante said, the company won't soon make any 2 decisions about staffing.
"There may be some obvious overlaps, but we aren't going to make any rash decisions," he said. "We're going to take it through the heating season, and see what happens. And just because there's an overlap doesn't mean Agway won't be saved."
Agway Inc. filed for Chapter 11 bankruptcy protection Oct. 1, 2002, but Agway Energy wasn't part of the filing. At the time it filed, Agway reported liabilities of $1.510 billion and assets of $1.574 billion as of June 30.
The energy subsidiary has a strong track record of profitability and growth, with annual sales of about $500 million.
Hoefer said about six companies submitted proposals to buy Agway Energy's assets, but Suburban's offer was the best.
Michael Hopsicker, Agway's chief executive officer and the former head of Agway Energy, said selling the energy division is in the creditors' best interests.
"We explored the option of reorganizing Agway around the energy business and recapitalizing Agway Energy Products in a way that could provide cash to Agway's creditors," he said.
Based on the value of the agreement, the decision was made to sell.
Agway Energy employs about 1,800 people, with 150 people at its DeWitt headquarters and about 80 others through Central New York. It reported pretax earnings of $10.5 million for fiscal 2002 on sales of $534 million.
Agway Energy provides heating oil, propane and energy equipment sales, installation and services in the Northeast serving about 500,000 homes, farms and businesses. It also sells deregulated natural gas and electricity, energy equipment and service.
Suburban Propane, which employs about 3,200 people, sees the Agway Energy acquisition as a way to expand beyond its propane business.
"We're very interested in everything they do, and that's why they were such an attractive candidate to us," Plante said of Agway Energy. "We are very much impressed with the way the energy business has been run, and we don't want to change that. Plus, it's a natural fit for us with a lot of potential synergies."
Since filing for bankruptcy, Agway has sought buyers for its businesses. The cooperative has sold its Agronomy and Seedway division, insurance and Telmark leasing businesses. After selling Energy, Agway will have its Animal Feed and Nutrition, Fresh Produce and Agricultural Technologies - all of those still for sale.
Agway's decision to sell its energy business is good for creditors, said a Cornell University professor who studies cooperatives. Agway needs to raise cash, and selling its most lucrative assets is the only way to do that, said Bruce L. Anderson, an associate professor in the university's department of applied economics and management.
Agway's back is up against the wall because other than selling divisions, it has few alternatives to raise money for its creditors, Anderson said.
"A lot of unsecured creditors are retirees, and they're not interested in receiving stock. They want cash," Anderson said. "Agway would have a tough time converting to another type of organization, so they need to do what generates the most cash."
Ned Tudi, who chairs the unsecured retirees' creditors committee, said it sounds like a good price for Agway Energy, and Suburban Propane is a well-known name.
"It sounds like a good deal for creditors," he said.
Agway has asked the court for a two-month extension on filing its reorganization plan, giving it until Jan. 26 to prepare the plan and until March 25 for approval.
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