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The Andersons, Inc. (NASDAQ:ANDE)

Acquisition of Thompsons Limited Conference Call

June 6, 2013 10:30 am ET

Executives

Nicholas C. Conrad – Vice President, Finance and Treasurer

Dennis J. Addis – President-Grain Group

Michael J. Anderson – Chairman and Chief Executive Officer

Analysts

Michael Cox – Piper Jaffray

Farha Aslam – Stephens Inc.

Eric Larson – CL King & Associates

Brent R. Rystrom – Feltl & Co.

Heather Jones – BB&T Capital Markets

Operator

Good day, ladies and gentlemen, and welcome to the The Andersons and Lansing Trade Group’s Agreement to Acquire Thompsons Limited Conference Call. My name is Dominque, and I will be your operator for today. At this time all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. (Operator Instructions)

I’d now like to turn the conference over to Mr. Nick Conrad, Vice President, Finance and Treasurer. Please proceed, sir.

Nicholas C. Conrad

Thank you. Good morning, everyone, and thank you for joining us for Andersons, Inc.’s discussion of Monday’s announcement regarding The Andersons, Inc.’s and Lansing Trade Group’s Agreement to Acquire Thompsons Limited. We have included a slide presentation that will enhance our talking points. If you are listening and watching this presentation via our website, the slides and audio are in synch. For those listening via telephone and watching the webcast, you should follow directions sent to you in order to synch the slides and audio. This webcast is available through the Investors Section of our website at www.andersonsinc.com. The webcast is being recorded and will be available on our website.

Certain information discussed today constitutes forward-looking statements. Actual results could differ materially from those presented in the forward-looking statements as a result of many factors, including general economic conditions, weather, competitive conditions, conditions in the Company’s industries both in the U.S. and internationally, and additional factors that are described in the Company’s publicly filed documents, including its ‘34 Act filings and the prospectuses prepared in connection with the Company’s offerings.

Unfortunately, Mike Anderson, Chairman and Chief Executive Officer and Hal Reed, Chief Operating Officer are unable to join us on the call today. With me today are John Granato, Chief Financial Officer and Dennis Addis, Grain Group President. John, Denny and I will be available to answer questions you have at the end of the prepared remarks. I will now cover our slide presentation, and then open the floor to questions.

As announced The Andersons, Inc. and Lansing Trade Group LLC have entered into an agreement to acquire the shares of Thompsons Limited, a grain and food-grade bean handler and agronomy input provider, headquartered in Blenheim, Ontario. The business of which Lansing Trade Group and The Andersons each hold 50% will continue to operate as Thompsons Limited. The transaction will be a share purchase and is subject to certain customary closing conditions, as well as being subject to Canadian competitive Competition Bureau policy approval.

It is expected to close third quarter 2013 and to be accretive on a full-year basis. Key highlights include additional geographic expansion and climate diversification, the leveraging of our strengths with those of our partner, Lansing Trade Group, as well as entering into the edible being market. The transaction is an opportunity to acquire substantial platform of assets that will leverage both The Andersons and Lansing Trade Group’s expertise in grains, edible beans, and food ingredients and agronomy. The transaction expands the existing presence in Ontario and Minnesota.

It focuses on fuel grains. It builds on core competency particularly in commodity merchandizing, commodity bulk handling, risk management, and long-term customer relationships. It increases the portfolio of food and specialty products, while expanding again the North American footprint, both geographically and through climate diversification.

Thompsons had 2012 full-year revenue of CAD540 million, has strong cash flows and more than 275 experienced customer service oriented team members. Established in 1924 Thompsons is an integrated supplier of value-added agricultural products and services to growers in Ontario and Minnesota and North Dakota and to food-processing customers worldwide. Thompsons owns and operates 12 grain elevator facilities, which are integrated with agronomy farm centers, seed processing, bean processing, and wheat processing.

Thompsons has a combined owned and leased grain storage capacity of 20 million bushels and 30,000 metric tons of nutrient capacity.

At this point, I will open the floor for questions for John, Denny, or myself.

Question-and-Answer Session

Operator

(Operator Instructions) And your first question comes from the line of Michael Cox of Piper Jaffray.

Michael Cox – Piper Jaffray

Thanks a lot, guys and congrats on the transaction here.

Michael J. Anderson

Thank you, Mike.

Michael Cox – Piper Jaffray

My first question is just for Dennis to – an overall strategy here of a couple of large-scale acquisitions now that you’ve made here in the past 12 months. And I’m curious if this is an indication of shift in strategy or if this is just a coincidence of two opportunistic buys here?

John J. Granato

This is John, Michael; I think it is not a shift in strategy. I mean, we have as part of our core look for growth opportunities, I know you’ve on our calls and these are just two great opportunities that have come along and we’ve been fortunate enough to be able to be in a position to get them. But we are going to continue to look for opportunities going forward, and I don’t know that there is a lot more to say except for that.

Michael Cox – Piper Jaffray

Okay, okay. And as you look at the – I know you’ve not disclosed specific terms of this transaction, but if we were to look at it, I would say, relative to the green plains transaction, could you may be frame up some of the metrics around this in relation to that large acquisition?

John J. Granato

We are not prepared to create that framing just you add, it hasn’t closed. And at this point, I’m just going to have to refer you to the filings we’ve made. So there is an 8-K out here, and then as things progress, I think we will be able to release more information.

Michael Cox – Piper Jaffray

Okay, all right. Well, thanks a lot, guys.

Operator

Your next question comes from the line of Farha Aslam of Stephens Incorporated.

Farha Aslam – Stephens Inc.

Hi, good morning.

Michael J. Anderson

Good morning

Farha Aslam – Stephens Inc.

Congratulations

Michael J. Anderson

Thank you.

Farha Aslam – Stephens Inc.

A question on the elevator capacity, do you anticipate integrating that with The Andersons system running it as a separate business. I think you’ve said that Thompsons’ folks will continue to run it. Just provide us some color on how those elevators will work in The Andersons system?

Dennis J. Addis

Hi, Farha, this is Denny Addis.

Farha Aslam – Stephens Inc.

Hi, Denny.

Dennis J. Addis

The 20 million bushel of storage up there will virtually run independent of The Andersons green system. Although as being a 50% owner, we are going to collaborate materially and particularly cross-border opportunities. But it will be run independent. It’s going to be subsidiary incorporated in Canada and will have its own – basically its own staff of resources, its own President.

Farha Aslam – Stephens Inc.

Okay. And so when you look at this transaction do you anticipate synergies in terms of cost-savings or revenue coming out of this transaction?

Dennis J. Addis

Yeah, the synergies would be more on the top line side more than the bottom line not that we will find some opportunities to mechanize may be some things they hadn’t done in the past or so forth. But we see a lot of opportunities – material opportunities to improve the top line both with ours and Lansing Trade Group’s expertise.

Farha Aslam – Stephens Inc.

Could you just share with us some ideas of kind of what they are doing now and perhaps what over time in terms of customer base, geographic base that you would look to add to this business?

Dennis J. Addis

I can’t get into a lot of specifics here. There the business is balanced pretty well from a gross profit standpoint where a third of it is agronomy and a third of it is the edible bean of sourcing and processing, and third is green – the traditional grain handling, grain trading. So until we close and we get our arms around we really can’t talk specifically how we can synergize. But there are opportunities that with the combined resources of Lancing, The Andersons, and W.G. Thompsons will be able to take the company to higher levels of income and revenues.

Farha Aslam – Stephens Inc.

Great. And then my final question is, do you anticipate this – the sale of Thompson just flow through Andersons’ P&L?

Dennis J. Addis

Right now we believe it will not be consolidated and it will come through as an equity investment, but we are still determining that with our auditors and it could move.

Farha Aslam – Stephens Inc.

Okay. We do hear. Thank you very much.

Operator

Your next question comes from the line of Eric Larson with CL King & Associates.

Eric Larson – CL King & Associates

Yeah, thanks for taking my question. Could you just give us a recap of if you look at the grain capacity, letting has generally operated on a different business model, but they’re looking to acquire grain capacity as well? Can you – does Lansing actually have its own grain capacity that is now unconsolidated in The Andersons system?

Dennis J. Addis

This is Denny Addis. Yes, they do have elevator capacity. I can’t recite you the number of bushels they have, but they do have elevators, it’s less capacity than what we do have. And what we’re doing here is, of course, Lansing as I think Mick indicated, Lansing has a presence in Ontario currently that will eventually be amalgamated with the Thompsons entity by the end of the year. So we’re going leverage their strengths in trading with our strengths in facility management and our agronomy. And today, we have some edible bean experiences as well and combine those together and leverage this opportunity to grow the business and grow the customer base.

Eric Larson – CL King & Associates

Okay. So we should basically look at this, given that you’re not going to consolidate at least at this point within The Andersons, it is really sort of a Lansing business with your 50% ownership and that will be accounted for as part of Lansing?

Dennis J. Addis

No, we are still looking through the accounting side of this from, it is truly a 50/50 joint venture, there is a governance model that requires a board agreements (inaudible) representation on the board. There is no super majority here. It is essentially going to be run as a stand-alone entity.

Eric Larson – CL King & Associates

Okay.

Dennis J. Addis

And that’s the current plan.

Eric Larson – CL King & Associates

Okay.

Dennis J. Addis

And…

Eric Larson – CL King & Associates

So will it have equal Board representation oversight from both Lansing and The Andersons? I mean, how do you – how are you going to represent it from a board basis?

Dennis J. Addis

Well, we’re not going to go into the specific details, but it’s going to be 50/50. There is going to be a President who is going to run that business up there. we’ve announced on that in core who works for the Andersons currently will be the Interim President up there. I think you can look at it as any – like any other governance structure where you have two 50/50 owners.

Eric Larson – CL King & Associates

Okay.

Dennis J. Addis

It’s not going to be different than that.

Eric Larson – CL King & Associates

Okay, all right. Thank you.

Dennis J. Addis

Yeah.

Operator

Your next question comes from the line of Brent Rystrom of Feltl.

Brent R. Rystrom – Feltl & Co.

Yeah, thank you. Just a couple of quick questions, out of curiosity, how would you characterize the area they’re serving, is it kind of like in general, I’m thinking from the agronomy and the Green story side, not so much of the feed going with the food based product, but is it a similar corns or same type market or is it different than the market presently?

Dennis J. Addis

Yeah, it’s – this is Denny Addis. yeah, it’s very similar to, let’s say, if you look at across the board to Michigan, I mean, the agriculture is a lot like Michigan, well, maybe not quite as diverse, but when wheat and soya beans are grown in Ontario and particularly outside southern corner to southwestern Ontario it is a pretty productive area, and the yields have been on the increase.

Brent R. Rystrom – Feltl & Co.

And Denny, as I’m looking at weather we’re getting here, which is like 14 of 17 days with rain, in that region and moves east off into that part of Ontario, are they having a very wet kind of weather impaired season like we are in the upper Midwest?

Dennis J. Addis

I don’t have the figures. I looked at planting progress is growing as well as the eastern corn-belt is. as you know, the eastern corn-belt is fair and better. So Ontario, I think is pretty much aligned with that.

Brent R. Rystrom – Feltl & Co.

Okay. And then my final question from a topical perspective. I know you haven’t done a lot of the beginning and strategizing how you’re going to fully implement things. But should people think about these businesses having somewhat similar characteristics as far as margins? You said there is a lot of top end things you can do to enhance the model. But when we look at them, how should we compare their agronomy say compared to your plant nutrient group? Are they a similar margin type of business?

Dennis J. Addis

Well, I can’t speak to margins, but they are a farmer facing organization like The Andersons is, their agronomy is all retail, unlike our plant nutrient group, which is majority wholesale. Their agronomy is all retail. And the agronomy is integrated with other elevators, not every, I think 10 or 11 of the sites have agronomy of the 12 in total. So it’s a more integrated model actually than…

Michael J. Anderson

So more like a crop protection service are something like that.

Dennis J. Addis

Right, right. If you look at a typical co-op structure where it’s got feed and fuel and agronomy and so far that we don’t have any feed and we don’t have fuel, but it’s an integrated model and the food being aspect of it is core to their business. They’ve got a good position in that area.

Brent R. Rystrom – Feltl & Co.

All right, wonderful. Thanks, guys.

Operator

(Operator Instructions) And your next question comes from the line of Heather Jones of BB&T Capital Markets.

Heather Jones – BB&T Capital Markets

Good morning.

Michael J. Anderson

Good morning.

Heather Jones – BB&T Capital Markets

Hi, just several questions, so am I correct in thinking that this is going – is it roughly a third, a third, third storage agronomy in edible beans production?

Dennis J. Addis

Yeah, this is Denny, Heather, yeah, from a gross profit standpoint, yes.

Heather Jones – BB&T Capital Markets

Gross profit, okay. I maybe asking a very ignorant question, but I’m going to go ahead. The edible beans production, is it how volatile is that, I mean is that a thing where your cost are fairly stable based on your land costs, production et cetera, but then are the edible bean prices volatile, but is that a piece of the business that could be more valuable than grain storage?

Michael J. Anderson

I will say, no. It’s not – I think it’s more a stable than volatile is the way I would describe it.

Heather Jones – BB&T Capital Markets

Okay. And it’s so is that – do you have like a set customer base that just buys that production year-after-year?

Michael J. Anderson

Yeah, most of it is contracted almost a year in advance. So I understand it.

Heather Jones – BB&T Capital Markets

Okay. And then on the grain storage side, is it similar to Andersons and that is predominantly corn and wheat and soybeans?

Michael J. Anderson

Well, that’s the – yes, so I would say corn, wheat, soybeans in that order just like you hit it. The facilities aren’t as high volume, high capacity as ours, but they are located up in the country where crops are growing. And the business they are doing on the grain side is – the most cases supplying all the agronomy inputs to those same growers.

Heather Jones – BB&T Capital Markets

So given they are not as high-volume, high throughput that we shouldn’t expect them to – like the normalized numbers that [Charl] gave out on your last call for your footprint, we shouldn’t expect their grain storage business to generate the same kind of profitability that yours does?

John J. Granato

Yeah, that – you are right. The grain storage won’t be near to leverage as it has with our base grain business, you are right. So it’s more in the handling, processing, upgrading in the food grade beans and agronomy here, so it’s less about grain storage and more about this fundamental margin on food group and production.

Heather Jones – BB&T Capital Markets

Okay, so when you were looking at this, this wasn’t your strategic push wasn’t driven so much by expanding the grain storage, it was more the opportunity you saw on the food-grade and agronomy side? Is that what you were saying?

Dennis J. Addis

That in where the climate diversification, geographic diversification leveraging the Lansing models in their Ontario office with this, it was a variety of elements that were compelling to us. But it wasn’t to say just grain space.

Heather Jones – BB&T Capital Markets

Okay, okay. Whereas, the Green Plains acquisition was driven by expanding your footprint in grain storage?

Dennis J. Addis

Right, although that gave us good geographic diversification as well our climate diversification.

Heather Jones – BB&T Capital Markets

Okay.

Dennis J. Addis

This is similar, but not quite to the degree of high volume grain space, right.

Heather Jones – BB&T Capital Markets

Okay. All right, that’s all I had. Thank you.

Operator

There are no additional questions. I would like to hand the call back over to Mr. Nick Conrad.

Nicholas C. Conrad

Thank you for joining us on our call today. Our next earnings call is scheduled for Wednesday August 7, at 11 am. Thank you and goodbye.

Operator

Thank you for your participation in today’s conference. This concludes the presentation. You may now disconnect and have a wonderful day.

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