Glencore comes knocking, but Bunge indicates it is not ready to play ball
Yesterday saw Glencore officially verify it had contacted the New York listed grain trader in relation to kick-starting discussions about a takeover.
It was reacting to media speculation - a recent article in the Wall St Journal - indicating as much.
“Glencore confirms that Glencore Agriculture Limited (GAL) has made an informal approach to Bunge Limited regarding a possible consensual business combination.
“Following this informal approach from GAL, discussions may or may not materialize and there is no certainty that any transaction will occur.”
Reacting, Bunge denied it was engaged in “business combination discussions” with either GAL or Glencore plc.
The US agribusiness giant, instead, stressed it was committed to continuing to execute its global agri-foods strategy and “pursuing opportunities for driving growth and value creation.”
There has been increasing conjecture about the prospect of consolidation in the international grain handling industry for months as commodities prices have not recovered, amid the bumper grain and soybean harvests of the past few years.
Bunge reported sharply lower first-quarter net profit on 3 May. Company CEO, Soren Schroder, told analysts in an earnings conference call, subsequently, that the sector would start to consolidate in response to the ongoing decline in profit margins for the big players.
“We’re certainly open to look at anything that creates value for shareholders and makes us more efficient,” he added.
Christopher Nolan, managing director, global deals origination at PriceWaterhouseCoopers, said consolidation in the grain handling business was likely following on from the amalgamation trend in the farm inputs sector. "It is the next level in the value chain."
He told us there was more confidence now among ag leaders on the back of the various mergers of crop chemical and seed players, some still pending, over the past two to three years including Dow and DuPont and Syngenta and ChemChina.
He expects executives will be aggressive in setting targets in terms of any grain origination alliance moves, with the mid-scale companies the more likely acquisition candidates.
A takeover of Bunge would give Glencore a stronger footing in North America.
Extending the Swiss company’s reach is a long held goal of Glencore CEO, Ivan Glasenberg.
In a conference call on Glencore’s earnings last year - in March 2016 - he said:
“We like the ag business; we've been in it for many years. However, we do believe this is a business that needs to grow. We are not active in various parts of the world and you need to grow in those parts of the world. It's no secret.
“We're pretty weak in the US but strong in other areas of the world. To grow in that business, you're going to need more financial muscle. We did buy Viterra. Viterra is a company that was already public, so we had the financial muscle to do the Viterra stake. But to do stuff bigger, it's clear it's time to bring in a partner.”
In June 2016, Glencore Plc agreed to sell just-under 10% of a stake in its agriculture unit to Canada’s British Columbia Investment Management Corp. for $624.9m in an ongoing strategy to reduce debt. It already sold a 40% stake in the unit to the Canada Pension Plan Investment Board (CPPIB) in April last year.
Those divestments were also reportedly done to bolster the agriculture unit’s ability to acquire additional assets.