NORFOLK, Neb. -- The directors of Affiliated Foods Cooperative here and United-A.G. Cooperative, Omaha, Neb., have approved a nonbinding letter of intent to explore the merger of the two companies.
The merger would create a co-op with sales of approximately $700 million -- nearly $500 million from Affiliated Foods and more than $200 million from United-A.G. According to Virgil L. Froehlich, president and chief executive officer of Affiliated Foods, the letter will serve as the basis for continuing negotiations between the two cooperatives during the next 90 days.
"We anticipate that proposed final, definitive agreements will be ready for consideration by members of both warehouses at the time of Affiliated Foods' annual meeting on Sept. 18," Froehlich said.
United-A.G. has scheduled a special shareholders meeting for the same date to vote on a merger proposal, he added.
The potential agreement provides "a unique and wonderful opportunity to merge two companies -- both of which are profitable and have good prospects," Froehlich said. "Our combination will make both companies even stronger and more efficient to serve our members and meet the future."
According to Terry Olsen, president of United-A.G., "Bringing together these two strong, service-oriented cooperatives creates the basis for enhanced market protection and development. We are excited for the independent
grocers who we now serve and who we will serve in the future."
Affiliated Foods was founded in 1931 and United-A.G. in 1933. "So we are longtime competitors and longtime rivals," Olsen told SN. "But because we are doing the same thing in similar markets, it appeared there might be advantages for our members by getting together and talking about a merger."
Affiliated Foods, which operates a 750,000-square-foot full-line distribution center here, serves more than 450 retail grocery stores in Nebraska, Iowa, Colorado, Wyoming, South Dakota, Kansas, Minnesota and Illinois.
United-A.G., which operates a 530,000-square-foot full-line distribution center in Omaha, serves more than 125 stores in Nebraska, Iowa, Colorado, Wyoming and South Dakota.
Neither party revealed further details about merger plans, such as a possible administrative structure or what name may be adopted.
If a merger is completed, the new entity might seek to bring other wholesalers into the picture, Olsen said. "After a merger, we would want to explore other possible acquisitions," he told SN.
Froehlich told SN the two companies began their discussions by working through the National Cooperative Bank in Washington.
Olsen said the Co-op Bank had served as a source of information.
"We saw what was happening in the industry with acquisitions and consolidations, and we recognized there are certain advantages to getting bigger and consolidating costs and increasing both market presence and purchasing power," Olsen said.