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Merger Plan Fails for Cadiz, Kadco

July 11, 2002|MICHAEL A. HILTZIK, | TIMES STAFF WRITER

Cadiz Inc., which is proposing to build a $150-million water storage facility in the Mojave Desert in partnership with the Metropolitan Water District of Southern California, said Wednesday that its plan to merge its agricultural operations with those of a wealthy Saudi prince had fallen through.

The merger with Kingdom Agricultural Development Co., or Kadco, was an important element of plans to refinance the debt-ridden operations of Sun World, the Santa Monica-based firm's subsidiary.

That would have produced as much as $25 million in cash to the parent company, Cadiz Chief Executive Keith Brackpool said this spring. Kadco, which is owned by Prince Al Waleed ibn Talal ibn Abdulaziz al Saud, is helping to develop a water and agriculture project sponsored by the Egyptian government near the Nile basin.

Beyond mentioning "technical reasons," Cadiz did not say why the proposed merger, first announced in January, had broken down.

But Brackpool told investors in May that the deal had run into regulatory problems with the Egyptian government. Under terms of the deal, Kadco would have acquired 49.75% of Sun World.

"It didn't make sense for either company at this point," Cadiz spokeswoman Wendy Mitchell said Wednesday.

The effect of the merger breakup on the Mojave water project, which is designed to store up to 1.5 million acre-feet of surplus Colorado River water for use during dry spells in Southern California, is unclear.

The terms of the proposed deal with the MWD call for Cadiz to provide half the $150-million construction cost, and the firm has indicated it would rely on borrowed funds for much of its share.

But Cadiz already is heavily indebted and was counting on the Kadco merger to provide it with new capital. At the end of last year, Cadiz reported carrying $141.4 million in debt, compared with shareholder equity of $17.7 million.

Cadiz shares Wednesday rose 13 cents to $4.30 on Nasdaq.

Brackpool and other Cadiz executives have said they have been working on other, unspecified refinancing plans in case the Kadco deal was not completed soon.

An MWD official said he was unsure how the merger breakdown would affect the water project but noted that it faces more immediate hurdles.

The project, which must be approved by the MWD board, is awaiting final environmental approval from the federal Bureau of Land Management, which controls some of the acreage surrounding the site northeast of Palm Springs. That approval, which was expected several months ago, has been delayed. Last week Sen. Dianne Feinstein (D-Calif.) introduced legislation that would bar the agency from issuing any approval until some outstanding environmental issues are resolved.

"The environmental issues probably have a more direct implication than anything in Cadiz's news release," said Adan Ortega, executive assistant to MWD Chief Executive Ronald Gastelum.

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