By Dana Mattioli, Jacob Bunge and Scott Patterson
Glencore PLC has made a takeover approach to grain trader Bunge
Ltd., people familiar with the matter said, a move that would make
the Swiss mining giant a major player in the U.S. agriculture
market.
It isn't clear where any discussions between the companies stand
and there may not be a deal. If there is one, it would be
substantial: Bunge had a market value Tuesday of nearly $10
billion; including debt, its so-called enterprise value was about
$15 billion. After The Wall Street Journal reported on the
approach, Bunge shares surged as much as 17% Tuesday afternoon.
Glencore is a mining and commodity-trading powerhouse with a
market value of GBP42.3 billion ($55 billion). An acquisition of
Bunge, one of the world's largest traders and processors of
commodities like soybeans and corn, would give Glencore a major
presence in the U.S., a long-held goal of Chief Executive Ivan
Glasenberg.
A deal would also be a sign that Glencore has recovered from a
turbulent 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 and oldest of the grain-trading giants that control the
flow of crops from farmers' fields to food plants and livestock
operations. It possesses an armada of grain terminals, processing
plants and related assets throughout the Americas. Along with
Archer Daniels Midland Co., Cargill Inc. and Louis Dreyfus, Bunge
is a member of the so-called "ABCD" club that dominates global
agribusiness.
The White Plains, N.Y., company 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. as it
grew to become the world's largest processor of oilseeds like
soybeans, Brazil's largest exporter of agricultural commodities and
a major marketer and processor of U.S. crops.
The company launched an initial public offering in 2001 and rode
a commodity boom that ran from 2007 to 2013, but since then it has
been hampered by a series of record-breaking harvests in the U.S.
and South America that have put pressure on grain prices.
Bunge in February reported a 6% decline in net income for 2016
and in May cut its profit projection for the year. The global grain
glut has 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, like 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."
Glencore's agriculture business posted $22 billion in revenue in
2016, compared with $66.3 billion for its metals and mining
operations. It is 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, according to Glencore's website.
Like most other Glencore businesses, the firm's agriculture
outfit trades heavily in the products it produces around the world.
Marketing activities in 2016 accounted for 85% of the group's
revenues.
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. That deal gave Glencore's
agricultural division its own board and put it on course for a
potential IPO in about seven years. Glencore sold an additional
9.99% stake in the agricultural unit to British Columbia Investment
Management Corp., another pension fund, for $625 million last
June.
While Glencore's agriculture business has grappled with the same
challenges its larger peers have, the parent company has regained
its footing. Since its share price plummeted in late 2015 due to
investor fears over its debt, Glencore has returned to profit
thanks to surging prices for copper, coal and zinc. The Swiss firm
has sharply reduced its debt load and its shares have gotten back
most or all of the earlier decline.
--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 23, 2017 15:18 ET (19:18 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.
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