May 25, 2023
Glencore’s Viterra in Merger Talks With US Grain Rival Bunge
(Bloomberg) -- Glencore Plc-backed agriculture trader Viterra is in talks to merge with US rival Bunge Ltd., one of the world’s largest crop merchants, according to people with knowledge of the matter.
The companies are negotiating the structure of a potential transaction, said the people, who asked not to be identified discussing confidential information. One option being discussed envisions a stock deal where Bunge shareholders would own a majority of the combined group, according to the people.
Shares in Glencore rose as much as 3.6% in early trading on Friday. The stock was up 2.9% at 8:28 a.m. in London. Bunge closed up 3.5% in New York on Thursday, giving it a market value of about $14.1 billion.
Glencore has flirted with the idea of a deal with Bunge on and off for years, and there’s no certainty they will be able to reach an agreement on terms of a transaction this time around, the people said. In 2017, it approached Bunge about a friendly takeover, but was publicly rebuffed by the US firm headquartered just outside St. Louis. Since then, Bunge has replaced its new chief executive officer and other senior executives.
“I think the current management team would be more open to a merger with Glencore, which is a stark contrast from the former management team, who appeared to not even entertain an offer,” said Seth Goldstein, a strategist at Morningstar Inc.
The deliberations are ongoing, and the structure of the deal could change or talks could fall apart, the people said. Representatives for Bunge, Glencore and Viterra declined to comment.
Dealmaking has been ramping up across the commodity and energy industries as recent years of big profits have left companies flush with cash. This week, Chevron Corp. agreed to buy Denver-based oil and gas producer PDC Energy Inc. in a $6.3 billion all-stock deal. And earlier this month, gold giant Newmont Corp. secured a A$28.8 billion ($18.7 billion) acquisition of Australian rival Newcrest Mining Ltd. Meanwhile, Glencore is in a separate battle to acquire Canadian miner Teck Resources Ltd.
After suffering through years of an agricultural downturn, Bunge and its rivals Archer-Daniels-Midland Co., Cargill Inc. and Louis Dreyfus Co. saw the return of bumper profits as Russia’s invasion of Ukraine threw global commodity markets into disarray, boosting crop prices and cutting off supply. That created the perfect conditions for trading houses that buy, sell and transport the world’s agricultural resources.
The industry’s recovery has opened up options for Bunge, which has been cutting costs, shrinking the business and selling under-performing assets since CEO Greg Heckman took over in 2019. The company, which operates the world’s largest network of crushing facilities processing everything from soybeans to canola, is now back on a growth path.
‘Everything’ on Table
“As we told the shareholders, everything is on the table,” Heckman said in an interview earlier this year. “We will continue to consolidate the industry where it makes sense globally to fill in any weaknesses that we have and continue to build on our strengths.”
At a conference in New York earlier this month, the company “indicated that its M&A pipeline is the biggest it has ever been,” Andrew Strelzik, an analyst at BMO said in a report.
Read More: A Two-Century-Old Grain Trader Turns to Food Science
Glencore has publicly said for years it’s reviewing ways to unlock value from Viterra. Chief Executive Officer Gary Nagle told analysts in February it’s a “terrific business” and said there are an “array of options” for ensuring the market reflects its worth. It could do a deal with a competitor, though Glencore would need to consider antitrust issues, he said. Other possibilities could include selling a stake to a new investor or pursuing the backup plan of an IPO, Nagle said on a conference call at the time.
Bunge is the world’s biggest processor of oilseeds, a business known as crushing. It’s the “B” of the four storied “ABCD” group of companies that have dominated agriculture for more than a century. ADM, Cargill and Louis Dreyfus round out the group, known for the initials of each company. A deal involving Bunge would likely give the quartet the biggest shake-up in a generation.
Glencore acquired Viterra for C$6.1 billion ($4.5 billion) in a 2012 deal that gave it grain assets in Canada and Australia. About four years later, it sold stakes totaling roughly half the business to Canada Pension Plan Investment Board and British Columbia Investment Management Corp.
“The merger makes a lot of sense — you combine the biggest oilseed crusher in the world with a top grain trader,” said Jonathan Kingsman, a former commodity trader who wrote the book Out of the Shadows: The New Merchants of Grain. “The cultural match could be challenging though.”
Heckman is no stranger to deals. During his tenure at ConAgra Foods, where he held senior executive roles, he lived through the sale of the company’s crop-inputs business and the spinoff of the grain-trading unit into Gavilon in 2008. He later steered the $2.7 billion sale of Gavilon to Japanese giant Marubeni Corp., with the business having also attracted Bunge’s interest.
Last year, Viterra spent $1.1 billion acquiring US-focused trader Gavilon from Marubeni.
A Viterra-Bunge merger would also create overlap in countries where both companies operate, such as Canada. Goldstein at Morningstar said it was unclear how regulators would view a deal if one was agreed.
“The industry is already fairly concentrated, so some divestitures may be required, which could reduce potential synergies,” Goldstein said.
--With assistance from Manuel Baigorri and Tarso Veloso.
(Updates shares in third paragraph, adds chart.)
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