By Dana Mattioli, Jacob Bunge and Scott Patterson
Glencore PLC has approached grain trader Bunge Ltd. about
combining, a deal that would give the Swiss miner a major presence
in the U.S. agriculture market at a time when low crop prices have
forced farming giants to scale up through mergers.
Glencore said its agriculture unit "made an informal approach to
Bunge...regarding a possible consensual business combination."
Discussions may or may not take place and there is no certainty
there will be a deal, Glencore said. The Wall Street Journal
earlier reported news of the approach, which Glencore confirmed
with its statement.
If a deal does emerge, it would be substantial. Bunge had a
market capitalization early Tuesday of nearly $10 billion.
Including debt, its so-called enterprise value was about $15
billion.
In a statement Tuesday, Bunge said: "Bunge is committed to
continuing to execute its global agri-foods strategy and pursuing
opportunities for driving growth and value creation."
Bunge shares surged on the news, closing 17% higher at
$81.70.
Glencore is a mining and commodity-trading powerhouse with a
market value of $55 billion. An acquisition of Bunge, one of the
world's largest traders and processors of soybeans and corn, would
vault Glencore into agriculture's global elite and give it a major
presence in the U.S. -- a long-held goal of Glencore Chief
Executive Ivan Glasenberg.
Buying Bunge would represent a long-term bet by Glencore on a
growing and more-affluent global population, which will require 48%
more grain and oilseeds by the year 2050, according to United
Nations estimates. Bunge's position in the U.S. and Brazil would
hand Glencore a major presence in the two largest soybean-producing
countries -- and the respective No. 1 and No. 3 in corn, according
to U.S. Agriculture Department. Bulking up in agriculture would
further diversify Glencore's operations and may help it weather the
price swings that make mining a notoriously volatile business.
It would also be a sign Glencore has recovered from a period two
years ago when the company faced questions about its solvency.
With $42.9 billion in sales last year, Bunge is among the
biggest of the grain-trading giants that control the flow of crops
from farmers' fields to food plants and livestock operations, using
an armada of grain terminals and processing plants throughout the
Americas. Along with Archer Daniels Midland Co., Cargill Inc. and
Louis Dreyfus Co., Bunge is a member of the so-called "ABCD" club
that dominates global agribusiness.
Bunge, which is based in White Plains, N.Y., traces its roots to
a Dutch firm founded in 1818. Its controlling families, the Bunges
and Borns, moved the company to South America and eventually the
U.S. The company went public in 2001 and rode a commodity boom that
ran from 2007 to 2013.
Since then, a string of record-breaking harvests in North and
South America has filled farmers' storage bins and sent grain
prices plunging. Corn futures are down 55% since peaking in August
2012. The glut has driven some U.S. farmers out of business and
pressured profits at the companies that supply seeds, pesticides
and fertilizer. It has also hurt companies like Bunge that purchase
crops and process them into food, fuel additives and industrial
products. Bunge in February reported a 6% decline in net income for
2016 and, in May, cut its profit projection for this year.
Low crop prices have left farmers in many of the world's
breadbaskets unwilling to sell crops at cut-rate prices, leaving
companies like Bunge with less to trade and process. Meanwhile,
some grain buyers, such as food processors and meat companies, have
been hesitant to purchase commodities in advance since prices are
expected to stay low. Soren Schroder, Bunge's CEO, said in May that
the standoff has left the global grain-trading system "frozen."
Mr. Schroder has said the grain business is ripe for
consolidation, given the industry's struggles to translate a
historic flood of crops into consistent profit growth. "It is very
clear that there are too many, too many trying to do the same thing
with a small margin," Mr. Schroder told investors at a recent
event.
Bunge's recent strategy has been to strike joint ventures and
partnerships with smaller companies to run mills and processing
plants more profitably. However, Mr. Schroder said recently that
"if there was something bigger, we're open to it."
The crop boom has already helped realign the seed and chemical
industry. Dow Chemical Co. and DuPont Co., which both sell
pesticides and develop genetically engineered seeds, are seeking to
combine, and German conglomerate Bayer AG is pursuing regulatory
approvals for its planned $57 billion purchase of Monsanto Co., the
world's largest crop-seed supplier. Canadian fertilizer giants
Agrium Inc. and Potash Corp. of Saskatchewan Inc. are pursuing
their own combination.
Glencore's agriculture business posted $22 billion in revenue in
2016, compared with $66.3 billion for its metals and mining
operations. It is already one of the world's biggest marketers of
wheat, feed barley, canola and sunflower products and is a major
exporter from Russia, the European Union, Canada and Australia,
though it has little presence in the U.S. It has about 14,000
employees world-wide, with 274 storage and handling facilities in
17 countries.
Glencore's Mr. Glasenberg is a prolific deal maker. The former
coal trader was part of a team that ousted founder Marc Rich in
1994. In 2002, Mr. Glasenberg became the company's CEO and later
took Glencore public.
In 2012, Glencore agreed to buy Canadian grain-marketing and
distribution company Viterra Inc. for about $6 billion. The next
year, Glencore merged with Xstrata PLC, a diversified mining giant.
In 2014, Glencore approached Rio Tinto about a merger that could
have created the world's biggest publicly traded miner, but was
rebuffed.
A world-wide slide in commodity prices forced Glencore to sell a
40% stake in its agricultural business to the Canada Pension Plan
Investment Board last year, among a range of moves to raise money
and reduce a heavy debt burden.
Glencore has regained its footing. Since its shares plummeted in
late 2015, Glencore has returned to profit thanks to surging prices
for copper, coal and zinc. Its debt load has fallen, and the stock
has recovered.
--Ben Dummett contributed to this article.
Write to Dana Mattioli at dana.mattioli@wsj.com, Jacob Bunge at
jacob.bunge@wsj.com and Scott Patterson at
scott.patterson@wsj.com
(END) Dow Jones Newswires
May 24, 2017 02:47 ET (06:47 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.
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