Agricore, an 83,000-member agriculture co-op, is merging with United Grain Growers (TSE:UGG)to form Agricore United in a move the companies say will save them $50 million a year.

"By uniting, UGG and Agricore will be able to substantially reduce administrative and operating costs, build on each company's strengths and maintain a strong presence in the face of increasing competition in the western Canadian agricultural industry," the companies stated in a news release.

The merged company is estimated to have a market capitalization of $450 million.

Agricore was formed in 1998 in the merger of two farmer-owned agriculture business co-ops, Alberta Wheat Pool and Manitoba Pool Elevators. The company has operations from northeastern British Columbia to Thunder Bay, Ont.

Founded in 1906, UGG is a Winnipeg company active in grain sales, crop inputs and livestock production services.

"To continue to serve the needs of our members, Agricore recognized a need to partner with a company that has good end-use connections and the capacity to access additional capital," Neil Silver, president of Agricore, said.

"In recent years, the entry of new players and the expansion of others has created a highly competitive environment," Silver added.

"This friendly merger will allow Agricore and UGG to take full advantage of our recent investments and remain a strong competitive force," he said.

"This will lead to greater operational performance for the benefit of both farmers and shareholders," UGG president and chairman Ted Allen said.

The combined company would have operating income of $145 million for the year ending July 31, 2001 based on grain handling volume of 12.5 million tonnes and farm supply sales of $775 million.

The co-op members of Agricore will exchange their equity in the company for roughly 20.5 million of Agricore United's 37.3 million shares.

Archer Daniels Midland, a big American agriculture business and a major shareholder in UGG, would see its stake in the new firm fall to 19 per cent. ADM would have the right to boost that to a maximum of 25 per cent within 20 days of the merger's completion. ADM is behind the Agricore-UGG deal.