Global commodities trader Glencore PLC is selling its agriculture division, which includes Viterra Ltd., the Canadian grain giant it acquired in 2012, to Bunge Ltd. BG-N to create a dominant North American company.
News of the potential sale broke a few weeks ago, and the companies confirmed the transaction Tuesday. St. Louis-based Bunge is paying US$8.2-billion in shares and cash, with US$6.2-billion in stock and $2-billion in cash.
Viterra is controlled by Glencore GLNCY, which has a 49.9-per-cent stake. Its second-largest shareholder, Canada Pension Plan Investment Board (CPPIB), holds a 40-per-cent position and is supporting the sale. CPPIB will receive a 12-per-cent stake in the combined company as well as US$800-million in cash. British Columbia Investment Management Corp. (BCI) owns the remaining 10 per cent of Viterra.
In a statement, Glencore said it supports the sale because the transaction will create “a larger, more diversified business, with significant synergy and re-rating potential.” Large and diversified companies sometimes give shareholders more comfort, because their operations include more complementary businesses that can withstand economic cycles. Investors, then, are willing to pay a higher price relative to the company’s net asset value.
Bunge currently generates 51 per cent of its earnings from processing agricultural commodities, while Viterra makes 65 per cent of its own from merchandising and handling. Combined, the two companies will make 41 per cent of their earnings from processing and 33 per cent from merchandising and handling.
Bunge also announced a US$2-billion share buyback on Tuesday, which will boost its earnings per share. Once the shares have been repurchased, Viterra’s shareholders will own 33 per cent of the combined company.
Canada’s antitrust regulator will review the planned merger between Bunge and Viterra, the Competition Bureau said in a statement on Tuesday.
The sale follows a banner year for Viterra, which worked through chaos in the global agricultural market stemming from severe weather events and Russia’s attack on Ukraine. Earlier this year, S&P said Viterra had “strong operational performance” in 2022, owing to “the very high market price volatility of soft commodities caused by adverse weather conditions in Europe and Brazil.”
However, S&P noted earlier this year that Viterra’s earnings “will likely normalize away from the very favourable market conditions in 2022 at a lower level in the next 12 to 24 months.”
Viterra operates a network of grain elevators, special crops facilities, processing plants and port terminals across Canada and parts of the United States, and it was folded into Glencore’s global agricultural division after the 2012 acquisition. The global division adopted the Viterra name in 2020 and generated net income of close to US$1-billion in fiscal 2022, much of which was derived from commodity storage, handling, processing and transportation.
Glencore has been building out a global footprint for its agriculture business and, last year, Viterra acquired Gavilon to expand in the U.S., where it had only a small presence. Viterra paid US$1.1-billion plus some working capital for the company, and Viterra is now a leading global trader in grains (wheat, corn, barley), oilseeds (soy, rapeseed, sunflower), meal and oils, according to Fitch Ratings. Glencore initially floated a merger of Viterra with Bunge in 2017 but was rebuffed.
Glencore originally acquired Viterra for $6.1-billion in 2012, then sold large stakes in its broader agriculture division to pension funds CPPIB and BCI in 2016 because it needed to repay debt. CPPIB paid US$2.5-billion for its stake.
In February, Glencore chief executive Gary Nagle expressed his frustrations with Glencore shareholders for not giving the company enough credit for Viterra’s value and said he would consider a transaction that would show the division’s true worth.
“We’re in no rush to do something with that business. It’s a great business. We can sit here and harvest the cash flows,” he told investors on a conference call. But, he added, “I don’t think, as Glencore, we necessarily get the true benefit of the value of that in our share price.”
After the transaction closes, the combined board will have eight Bunge-nominated directors and four from Viterra. Glencore and CPPIB will each have the right to nominate two board members.