Viterra bid may need Canadian component

Share

Potential bidders for agriculture giant Viterra Inc. are evaluating options for making a takeover more palatable to the federal government, including bringing a Canadian partner into the deal.

Viterra, the dominant grain-handling company on the Canadian Prairies, has been in play since it revealed Friday that it has received "expressions of interest from third parties." Most of the talk centres on a handful of large foreign players in agriculture and commodities – Glencore International PLC of Switzerland and U.S. giants Archer-Daniels-Midland Co. and Cargill Inc., among others – that would require Ottawa's approval for what would be a more than $5-billion deal.

The Harper government has quashed two foreign takeovers in the past four years, most notably BHP Billiton's hostile play for Potash Corp. of Saskatchewan Inc., and would be under pressure not to intervene a third time for fear of sending a negative message to foreign investors. Industry Minister Christian Paradis signalled Monday that the government is aware of the perception, and hinted that it is open to a deal.

"Foreign investment helps our companies to grow and innovate and provides new opportunities to connect our firms to the world," Mr. Paradis said. "Our government will continue to welcome investment that benefits Canada."

But should a foreign company emerge to buy what was once a humble farmer-owned co-operative named Saskatchewan Wheat Pool, the deal is still likely to be politically contentious – which has some bidders looking at ways to add Canadian content to a proposal, sources said.

One possibility is for a foreign company to make an offer with a Canadian entity such as Calgary-based Agrium Inc. Agrium is largely a fertilizer company, but it also operates about 75 retail stores across Western Canada.

Agrium could enter a joint bid for Viterra and pick up its roughly 261 Canadian retail stores while unloading the grain-handling operation to its foreign partner. Agrium did something similar in 2010 when it bought Australia's AWB Ltd., the country's former wheat board, for $1.17-billion (U.S.). Agrium kept AWB's retail operations and sold the commodity management business to Cargill.

Viterra's "agri-products segment would be a strong geographical match for [Agrium]" BMO Nesbitt Burns analyst Joel Jackson said in a report Monday. He added that the transaction would allow Agrium to reach its long-stated objective of $1-billion (Canadian) of retail operating profit. The company currently generates about $769-million in profit from its retail business. A spokesman for Agrium declined to comment.

Analysts have suggested a number of companies would be interested in Viterra, which controls 45 per cent of the grain trade in Western Canada and nearly all of the trade in Australia. Glencore is concentrated largely in the mining sector and owns a minority interest in Xstrata PLC, which it is trying to fully acquire in a takeover bid. But the company has long expressed an interest in expanding into the agricultural sector and held unsuccessful merger talks last year with French grain trader Groupe Louis Dreyfus. Glencore has also been among the rumoured bidders for U.S. grain trader Gavilon Group.

Other potential suitors for Viterra include Bunge Ltd. and Asian players Wilmar International Ltd. and Mitsui.

The key to any bid will be not only price, but getting the nod from the Canadian government under the Investment Canada Act. The Act gives the government the authority to block deals that do not present a "net benefit" to Canada.

Just how the federal government will react to a bid for Viterra is uncertain. The Liberals and New Democrats have raised questions about a takeover, linking it to the government's recent decision to strip the Canadian Wheat Board of its 76-year-old monopoly over the sale of all wheat and barley grown in Western Canada.

"Whether you like the central pillar of the Canadian Wheat Board or dislike it, you've just kicked down the centre pole of the tent and there will be consequences," Liberal MP Ralph Goodale said Monday.

"If Viterra has this sudden surge of new business … that just makes Viterra a prime takeover target. [The Tories]must have anticipated that."

He also worried that a Glencore takeover might not be good for Canadian farmers because the "brains of the outfit" will be in Switzerland, instead of Canada. "If you've replaced what is essentially a Prairie-based system with one based in the Alps, it's hard to understand how that is going to be more sensitive to what farmers want," he said.

Saskatchewan Premier Brad Wall, whose opposition in 2010 to a takeover of Potash Corp. helped convince Ottawa to block BHP's bid, said he did not consider Viterra of strategic importance.

"This doesn't fit our own definition of a strategic resource," Mr. Wall told reporters in Regina, where Viterra is based.

With files from reporter Barrie McKenna and Reuters