A merger between Glencore Plc’s Viterra unit and Bunge Ltd. to
create a $25 billion agricultural trading behemoth has the support of two of
Canada’s biggest pension funds, according to a Bloomberg report citing an
individual with direct knowledge of the matter.
Canada Pension Plan Investment Board and British Columbia
Investment Management Corp. are willing to swap their combined 49.98% stake in
Viterra for investments in the merged entity, said the source, who asked not to
be named discussing a private deal. Glencore, with a 49.99% stake in Viterra,
would do the same, according to The Globe and Mail.
Spokespersons for the two pension fund managers and Viterra
declined to comment.
A merger would create a trader big enough to take on the
industry’s elite: Cargill Inc. and Archer Daniels Midland Co. Viterra and Bunge
are negotiating the structure of a potential transaction (GM May 26, p.
30). One option being discussed envisions a stock deal where Bunge shareholders
would own a majority of the combined group, according to sources.
Glencore has flirted with the idea of a deal with Bunge on
and off for years, and there is no certainty it will be able to reach an
agreement this time around. In 2017, the Swiss commodities giant approached
Bunge about a friendly takeover but was publicly rebuffed by the US firm. Since
then, Bunge has a new CEO and other senior executives. Bunge CEO Gregory
Heckman is expected to run the combined companies, according to the Globe.
Heckman was carefully chosen for his trading and deal-making
credentials, and for many years there was speculation the new chief was
preparing Bunge for sale, according to Bloomberg. At ConAgra Foods,
Heckman oversaw the spinoff of the firm’s grain and fertilizer trading units into
Gavilon in 2008, and later steered the $2.7 billion sale of Gavilon to Japanese
giant Marubeni Corp. The grain unit was eventually sold to Viterra, while Gavilon
Fertilizer remained with Marubeni and is now known as MacroSource.
At Bunge, Heckman spent years cutting costs, selling
under-performing businesses, and focusing on risk management. He focused on
making Bunge an oilseeds giant, processing everything from soybeans to canola
and sunflower seeds to make frying oil and animal feed.
But instead of selling the trader, Heckman put Bunge back in
the game – its market value has gained about
80%, and the company is now sitting on a pile of cash.
The CEO has also been helped by forces outside his control.
Bunge benefited from both the boom in renewable diesel and Russia’s invasion of
Ukraine, which allowed trading houses to profit from the turmoil and volatility
in commodity markets. That backdrop also favors deals, Heckman said in an
interview earlier this year.
“We’ve got the dry powder, we’ve got the firepower to do all
those things,” the CEO said in February. “We’ve got the firepower to do a
bigger deal if it makes sense, but things have got to make sense.”
While Heckman’s predecessor rebuffed Glencore’s approach to
buy Bunge in 2017, this time the US trader is leading the charge.
Glencore, which has for years been reviewing ways to unlock
value from Viterra, is open to deal with a competitor, CEO Gary Nagle said
earlier this year. Other options for the non-core business – which has limited synergies with its wider metals, mining,
and trading operations –
could include selling a stake to a new investor or pursuing the backup plan of
an IPO, Nagle said in February.
A merger offers Glencore the potential to monetize its 49.9%
Viterra stake, said Dominic O’Kane, an analyst at JPMorgan Chase & Co., who
values that holding at $6.1 billion. The bank assumes Glencore would retain a
minority shareholding in the combined entity.
A deal would have to clear antitrust concerns. Bunge
operates in more than 40 countries with over 300 facilities, while Viterra is
present in 37 nations and has over 320 facilities. Most of their assets are
complementary, but some see heavy overlap in places like South America and
Canada.
While divestments would reduce potential synergies, the key test of any deal would only come when the boon of commodity market volatility dissipates, according to Chris Robinson, Managing Director of Agriculture and Commodities at TJM Institutional Services in Chicago.
“The test of this merger won’t be if prices stay high,” he
said. “The test will be if we have any deflationary pressures.”
Viterra has already started promoting the benefits of the
deal with Western Canada’s provincial governments, promising minimal layoffs
and efficient service, according to the Globe, which cited a Viterra
source who saw the logic of the merger, with Viterra having a business
concentration in wheat, corn, and barley, while Bunge specializes in oilseeds.
