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Bunge to acquire Viterra for $18bn, forming an agrobusiness titan

Updated: Oct 30, 2023

Acquisition Overview

Bunge has reached a definitive agreement with Viterra to purchase the company in a combined cash and stock deal for approximately $18bn, including outstanding debt. This forms a part of Bunge’s plan to unequivocally eclipse Louis Dreyfus, and to challenge Archer-Daniels-Midland (ADM) and Cargill, asserting its position among the ABCD, the elite of the agrobusiness market. Completing the first stage of Bunge’s Renaissance under CEO Heckman, this deal promises considerable synergies and improvements to network efficiencies, adding Viterra’s distribution strength to existing processing capabilities. The ABCD have come under intense scrutiny in recent years, and as such the ESG impact of this deal will undoubtedly be crucial.

Deal Structure

Bunge will acquire Viterra for $8.2bn, paid in $6.2bn in shares, subject to a 12 month lockup, and $2bn in cash, also assuming Viterra’s debt of around $9bn. As such, the total transaction fee is $18bn, though Bunge’s strong balance sheet means that this additional debt will not weigh too heavily, as the company’s debt to EBITDA ratio will remain below 2x. Bunge will buy back $2bn of stock in order to increase accretion. The financing for this transaction will primarily be provided by a loan from Sumitomo Mitsui, who have committed to providing $7bn. Immediately following the announcement of the merger, Glencore and Bunge shares rose 5.3% and 2.5% respectively. Glencore have stated that they will use the cash to repay existing borrowings.

There will be antitrust concerns, given heavy overlap in South America and Canada, however, both sides remain confident that any legal issues will be remedied. It is expected that a number of assets will be sold, as Canada and Argentina have already committed to reviewing any overlap, while Brazil, Australia, the US, and China are expected to do the same.

Bunge are being advised by Latham & Watkins LLP and Bank of America Securities. Glencore’s are also being advised by Bank of America, in addition to RBC Capital Markets, Bennet Jones LLP, Linklaters LLP, King & Wood Mallesons, and Mallet-Prevost, Colt and Mosle LLP. Canaccord Genuity, Torys LLP, Ashurst, and Sidley Austin LLP, meanwhile, are advising Viterra, whose board of directors are being advised by TD Securities and Fasken Martineau DuMoulin LLP.

Bunge Overview

Bunge LTD is an agribusiness and food giant, headquartered in Missouri. Its main businesses include the acquisition, processing, and offloading of grain, oilseeds, and biofuels, among other agricultural commodities. In recent years, the company has diversified, producing a number of consumer food products and ingredients, though CEO Heckman has looked to offload part of this capability, selling Bunge’s Brazilian margarine and mayonnaise business to Seara Alimentos in 2019, for instance. This streamlining, in addition to a focus on risk management, has allowed the company to undergo what has been termed a ‘Renaissance’ since Heckman’s takeover. Under his premiership, Bunge’s value has increased by 80% and cash reserves have been bolstered, following a period of stagnation during which competitors forged ahead.

Bunge’s shareholders are overwhelmingly institutions, with the largest by far being Vanguard (11.85%) and Capital Research & Management (10.55%). Other notable investors include UBS, Fidelity, and Geode Capital Management.

Founded: 1818

Number of employees: 23,000

LTM Revenue: $66.68bn

LTM EBITDA: $2.94bn

Market Cap: $13.83bn

EV: $17.30bn

Viterra Overview

Viterra is an agribusiness, centred in Canada, that provides grain handling, marketing, and distribution services, playing a crucial role in connecting farmers with markets, both domestically and internationally. The company also offers advice to support farmers, including agronomics and risk management. Viterra’s operations are primarily in North and South America, Australia, and Asia. In October 2022 Viterra purchased Gavilon for $1.125bn, expanding its presence in the lucrative US grain market. This sale represents an end to Glencore’s agricultural trading arm, which has been downsizing over recent years, having sold down its stake in Viterra to just under 50% in 2016.

Viterra is privately owned by Glencore, The Canada Pension Plan Investment Board, and The British Columbia Investment Management Corp.

Founded: 1924

Number of employees: 18,000

Revenue: $53.854bn (2022)

Income before tax: $1.206bn (2022)

Industry Insight

The agrobusiness industry has faced a series of considerable challenges in recent years. A general shortage of labour and COVID-19’s disruption to global supply chains undermined growth. More importantly, perhaps, the ABCD and its peers have come under fire for their enormous impact on the environment. While many have adopted internal deadlines to rid supply chains of deforestation by 2030, this has not come soon enough for Cargill, against whom a legal complaint has been lodged in the US over deforestation and human rights abuses in Brazil. Moreover, the industry has had to scramble to reduce its carbon footprint. Cargill, for example, has invested in wind powered shipping to reduce carbon emission in its global supply chains. Similarly, the vertical integration that these companies have pursued has been criticised, as many of them now control the origination, processing, and distribution of agricultural products. This has not, however, negatively impacted profitability: in fact, the last 5 years have been exceptional for agrobusinesses. The war in Ukraine drove grain prices up and, as such, profitability soared. Indeed, much of the volatility inhered by environmental concerns has been of great profit to these companies.

The traditional dominance of the ABCD has been challenged in recent years, though, as states look to shore up their food security. China’s state owned Cofco has been aggressively expanding of late as the CCP looks to move past its reliance on American commodity traders, with some now referring to an ABCC, to the exclusion of Louis Dreyfus. The sovereign wealth funds of both Saudi Arabia and the UAE have taken a similar approach, taking large stakes in agrobusinesses. While this geopolitical drive to diversify the market has not yet been overly deleterious to the ABCD, it would not come as a surprise if, in the future, the dominance of (ADM), Cargill, and Bunge comes to be seriously challenged.

Despite depressed M&A deal volume, middle-market agrobusiness activity has remained fairly high. The above pressures of sustainability and labour shortages have driven dealmakers to look to consolidate through vertical integration in an effort to strengthen production pipelines. For the ABCD, meanwhile, the same has not necessarily held true. Large tie-ups have remained rare, with Bunge’s move to acquire Viterra being the largest since Cargill’s acquisition of Continental in 1999, with smaller, strategic acquisitions being preferred. Moreover, considerable regulatory and public scrutiny may restrict further consolidation among the largest players, given widespread concerns over the the development of an oligopoly in such an important market. Large acquisitions, therefore, may continue to be rare, unless they can be positioned as facilitating a transition towards more sustainable and ethical business practices.

Strategic Rationale

This acquisition will undoubtedly improve Bunge’s operating efficiency. Viterra’s global network will serve as an important supplement to Bunge’s existing capabilities, allowing for network benefits and economies of scale. Importantly, Viterra’s strengths in handling and marketing will enable Bunge’s processed goods to be more easily delivered to market. Moreover, diversification in grain and soft-seed handling capabilities will leave Bunge less susceptible to market downturns.

However, the $250m in synergy, expected to be realised within 3 years, is not the sole motivating factor. Rather, this significant upscaling forms a part of Bunge’s wider corporate strategy by launching the combined entity into the second place among its four most notable competitors, its ABCD rivals whose dominance it is on a war path to challenge, above all ADM and Cargill, and, to a lesser extent, Lous Dreyfus, the final member of the charmed circle of American agrobusinesses. Further, larger size will facilitate Bunge’s pursuance of its sustainability goals of reduced action on the climate, responsible supply chains, and accountability. Viterra’s large network will be leveraged to broaden attempts to reduce poverty, hunger, and gender inequality, among other goals. Similarly, more resources can be committed to R&D, accelerating research into less destructive processing mechanisms, for example, through collaboration between teams at the combined agricultural titan.

For Glencore, meanwhile, the benefits of a sale are clear. Now is a particularly lucrative time to cash in on Viterra, whose profits soared following the war in Ukraine that drove grain prices up, drastically improving the company’s profitability. Thus, while the sale price actually lies below the expectations of many Wall Street analysts, who had anticipated an even more inflated valuation, this is undoubtedly a big win, delivering considerable value to Glencore investors and furthering the Swiss company’s wider corporate aims.

Long-Term Prospects

This deal will undoubtedly strengthen Bunge’s international position. Improvements to efficiency, in addition to the limited synergies, will deliver value to shareholders, while the company’s vision of challenging Cargill is significantly accelerated. However, it remains to be seen whether the sustainability benefits promised will be realised. This will surely play a crucial part in determining whether this deal has been a success, as corporate responsibility becomes increasingly important. If unsuccessful, though, it would not come as a surprise if both legal and PR pressures increasingly come to weigh on Bunge.

Written by Thomas West (St John’s College)

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