Global commodities trader Glencore PLC GLNCY is in talks to merge its agriculture division, which includes Viterra Ltd., the Canadian grain giant it acquired in 2012, with Bunge Ltd. BG-N to create a dominant North American company, according to someone familiar with the transaction.
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.
The goal now is to merge with St. Louis-based Bunge, which is one of the world’s four dominant agriculture companies and has a market value of US$14-billion. Glencore initially floated a merger with Bunge in 2017, but was rebuffed. This time around a deal is looking likely, but the two sides have yet to agree on a price, according to the source.
The Globe and Mail is not identifying the source because they are not authorized to speak publicly about the matter.
Glencore originally acquired Viterra for $6.1-billion in 2012, then sold large stakes in its broader agriculture division to pension funds Canadian Pension Plan Investment Board and British Columbia Investment Management Corporation (BCI) in 2016 because it needed to repay debt. CPPIB paid US$2.5-billion for its stake.
Glencore currently owns 49.9 per cent of Viterra, while CPPIB owns 40 per cent and BCI owns 10 per cent.
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.”
“If we have a proposition for that business which allows us to – allowed the market to get that see-through value … what we believe the business is worth, then we would look at that,” he added.
However, Mr. Nagle acknowledged that Viterra hasn’t been the easiest business for investors to wrap their heads around. “Perhaps it hasn’t been that cash generative over the past few years, but that’s because it’s been investing in its own balance sheet,” he said.
Viterra’s debt is currently rated BBB- by Standard & Poor’s, which is the lowest rung of investment grade debt.
Earlier this year S&P said the company 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.” S&P noted that earnings “will likely normalize away from the very favorable market conditions in 2022 at a lower level in the next 12-24 months.”
The Viterra talks extend Glencore’s transaction activity in Canada this year, after the global giant approached Teck Resources Ltd. about a takeover. The federal government has hinted that it does not approve of the proposed takeover.
Glencore, Bunge, Viterra and CPPIB all declined to comment for this story.
With reports from Reuters and David Milstead