by Javier Blas, Dinesh Nair and Shruti Date Singh
Glencore Plc, the commodity giant led by billionaire Ivan Glasenberg, has made a takeover approach for U.S. grain trader Bunge Ltd., in a move that could reshape an industry long-dominated by four companies.
Glencore approached Bunge about “a possible consensual business combination,” the company said in a statement Tuesday, adding that there’s “no certainty that any transaction will occur.”
Shares of White Plains, New York-based Bunge surged after news of the approach was reported earlier, jumping as much as 18% in the stock’s biggest intraday gain since 2008. The U.S. company has a market value of about $11.3 billion.
Baar, Switzerland-based Glencore is seeking to break the century-long dominance of the industry held by the so-called ABCD quartet -- Archer-Daniels-Midland Co., Bunge, Cargill Inc. and Louis Dreyfus Co.
It’s no secret that Glencore has been on the hunt for assets in the U.S. grain industry. Glencore’s Chris Mahoney, who runs the agriculture unit, said in an interview with Bloomberg News published earlier this month that the company was having trouble finding “ willing sellers.” Within a day of those comments, Bunge Chief Executive Officer Soren Schroder indicated to analysts on an earnings conference call that his company would be open to participating in industry deals.
“People look at us just like we look at everybody else every day," Schroder said in an interview at the time. "I am not surprised. We are a very attractive company.”
Bunge declined to comment.
Mahoney said in the interview that by at least one measure, weight, the company already has broken into the category of the ABCD companies.
"I think it’s very much ABCD and G now," Mahoney, 58, said in his office in central Rotterdam, just inland from Europe’s biggest port. Glencore is already the world’s largest wheat trader and biggest merchant of pulses such as chickpeas.
Bunge rose 17% to $81.70 Tuesday in New York trading. Shares of rival ADM also climbed, adding as much as 4.8%.
Several years of commodity price declines have helped spur the series of mega-deals currently reshaping the seed and chemical industry, including Bayer AG’s planned acquisition of Monsanto Co. and Dow Chemical Co.’s merger with DuPont Co. In contrast, the grain-handling industry has seen relatively little deal-making over the period.
“Consolidation is desperately needed,” and would be “constructive” for margins, Heather Jones, a Richmond, Virginia-based analyst for Vertical Group, said in a telephone interview on Tuesday. “Bunge seems the most obvious target. It’s more digestable than some of the other properties out there.”
The deal “would make sense for Glencore” because agriculture is more stable than metals, the Swiss company’s historical foundation, Steve Laveson, a portfolio mananger for Becker Capital Management in Portland, Oregon, said in a telephone interview on Tuesday. Becker owns more than 630,000 shares of Bunge.
“It’s an acquisition for corporate strategy than synergy,” Laveson said.
The last time there was a round of mergers in the industry, it wasn’t the ABCDs that led the way, but Glencore, which bought Canadian grain merchant Viterra Inc. for C$6.1 billion ($4.8 billion) in 2012, and Japan’s Marubeni Corp., which acquired Gavilon Group LLC for $2.6 billion the following year.
Glencore spun off its agriculture unit after its existential crisis in late 2015 when commodity prices plunged and debt concerns sent the stock tumbling to a record low. In part to weather the crisis, Glencore sold 49% of its agriculture unit to two pension funds -- Canada Pension Plan Investment Board and British Columbia Investment Management Corp. -- for $3.1 billion.
The sale created a new company with its own balance sheet, which isn’t guaranteed by Glencore itself. The business reported earnings before interest, taxes and depreciation, attributable to Glencore, of $592 million last year, compared with $830 million for Dreyfus, the smallest of the ABCD companies.
Mahoney, who won a silver medal in rowing at the Moscow Olympics in 1980, attempted another big agriculture deal in 2011, exploring a merger with Louis Dreyfus. The companies, after several weeks of talks, were several billion dollars apart in valuation and the deal never happened.
Peter Grauer, the chairman of Bloomberg LP, is a senior independent non-executive director at Glencore.
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Millie Munshi, Patrick McKiernan
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