Canadian-based grain and fertilizer company Viterra Inc. confirmed on March 9 that it has received expressions of interest from third parties. It said there can be no assurance that any agreement or transaction will result. The company said a further announcement will be made if appropriate. By March 15, the Canadian press said Viterra had further acknowledged that it had opened up its books for a full-fledged auction.
Reports identified a bidder as commodity trading giant Glencore International PLC, Switzerland. Others said a bidding war could develop for Viterra, with potential contenders being Cargill Inc., Archer Daniels Midland Co., and Bunge Ltd. In addition, others suggested that a Canadian company could either bid or be a part of a buying group, so as to relieve any regulatory concerns from the Canadian federal government. Under the Investment Canada Act, the government must approve major sales valued at over C$312 million to foreign companies. Such a sale must be found to have a “net benefit” to the country. The government ruled against BHP Billiton’s takeover attempt of Potash Corp.
of Saskatchewan Inc. in 2010. To date, Canadian companies mentioned as possible contenders – at least for some of Viterra’s assets – included Agrium Inc., a fertilizer producer and retailer; privately-held Richardson International, a grain trader and input retailer based in Winnipeg; and major Canadian pension funds.
On March 15, The Globe and Mail painted a scenario where Glencore, Agrium, and Richardson would buy Viterra and divvy up the assets. Agrium, which has been hungry to grow its retail business, would take the bulk of Viterra’s Canadian retail outlets, Richardson would take certain port assets and elevators, and Glencore would take the bulk of the rest of the assets in Canada and Australia. Glencore is reportedly not interested in the retail assets. As a result, Agrium could conceivably wind up with those in Australia as well.
Some of the same companies mentioned above, including Viterra itself, are also seen a contenders for Gavilon Group LLC. Glencore is also currently seeking Swiss coal and metals producer Xstrata Plc.
Much of the interest in Viterra derives from the Marketing Freedom Act, which changed grain trading laws in Canada. Western Canadian farmers may now sell their wheat and barley to any buyer they want for delivery after Aug. 1, 2012, rather than to the government monopoly, the Canadian Wheat Board. Viterra, which reportedly holds a 45 percent share of the Canadian grain handling market, is expected to soon grow that share to 50 percent as a result of the change in the law. EBITDA is expected to grow by some C$40-$50 million in 2014 as a result. In addition to grain-related assets in Canada and Australia, Viterra owns a burgeoning retail business in both countries, with approximately 260 locations in Canada and 25 in Australia, and a 34 percent stake in the Canadian Fertilizers Ltd. nitrogen plant in Medicine Hat, Alberta. Fertilizer has put in a stellar performance for the company in recent earnings reports, including the one inside this issue.
On the Toronto Stock Exchange, Viterra shares closed Thursday, March 8, the day before it acknowledged acquisition interest, at $10.98. On Thursday, March 15, they closed at $16.09, an increase of 46.5 percent in one week.