Glencore International Plc (GLEN), the world’s largest listed commodities trader, has expressed an interest in Canadian grain-handler Viterra Inc. (VTA), according to a person familiar with the situation.
Other companies may also be interested in Viterra, said the person who declined to be identified because the details haven’t been made public. U.S. agricultural commodity trader and processor Cargill Inc. also has expressed an interest, the Wall Street Journal reported, citing people it didn’t identify.
Glencore Chief Executive Officer Ivan Glasenberg is looking to expand his North American grain business even as he pursues a 27.7 billion-pound ($43.4 billion) takeover of Swiss metals and coal producer Xstrata Plc. Glencore is also among companies interested in closely held grain handler Gavilon Group LLC, people familiar with the matter said March 6.
“Investors would be pleased to see they’re not missing opportunities despite the larger merger,” London-based Fairfax IS analyst John Meyer said yesterday in a telephone interview. “If Xstrata doesn’t happen, they’re getting on with growing the business anyway.”
Holly Gibney, a spokeswoman for Regina, Saskatchewan-based Viterra, declined to comment and referred back to the company’s March 9 statement in which Viterra said it had received expressions of interest from third parties. A spokesman for Baar, Switzerland-based Glencore declined to comment when contacted by Bloomberg News. Lisa Clemens, a spokeswoman for Cargill declined to comment. Glencore’s interest in Viterra was reported earlier by The Sunday Telegraph.
Wheat Monopoly
Buying Viterra would give Glencore the largest share of the Canadian grain-handling market just as the Canadian Wheat Board’s monopoly over wheat and barley grown in the west of the country comes to an end. Viterra’s share of Canadian grain- handling may rise to almost 50 percent in the next few years from 45 percent, its Chief Executive Officer Mayo Schmidt said in an interview on March 8.
The Canadian government passed a law in December that will end the monopoly and give farmers the choice to sell to other buyers as of Aug. 1. Viterra said in January it expects to increase grain volumes and earnings after the board’s control of supplies ends.
Viterra’s Sydney-traded shares jumped 30 percent to A$13.50 at 12:02 p.m. local time. Its Toronto-traded shares closed up 24 percent at C$13.58 on March 9, boosting the company’s market value to C$5.05 billion, following the statement about expressions of interest. Glencore’s Hong Kong-traded shares gained 0.3 percent to HK$50.00 at 9:34 a.m. local time.
North American food and agriculture companies have fetched a 31 percent premium on average in takeovers greater than $1 billion, data compiled by Bloomberg show. Using Viterra’s March 9 closing price, that would imply an offer for C$14.38 a share. Based on the median 10 times multiple of earnings before interest, tax, depreciation and amortization paid in comparable deals, Viterra may command about C$17 a share, the data show.
‘Difficult Year’
Buying Viterra might help Glencore’s agricultural business to return to profit after a “difficult year,” said Fairfax’sIS’s Meyer. Moving into storage of wheat and other logistics beyond just trading grains would likely help boost margins, he said.
“We have said at the time of the IPO we would like to increase the scale of our grain business in North America,” Glasenberg said in a March 5 interview, referring to the commodity trader’s $10 billion initial public offering last May. “We will definitely look at opportunities in North America, whether Gavilon or others, we will look at everything that’s available opportunistically.”
Cotton Loss
Glencore’s 2011 adjusted earnings before interest and tax from its agricultural trading unit swung to an $8 million loss from a $659 million profit a year earlier. The company had a “one-off” cotton-trading loss, Glasenberg said March 5. Adjusted profit from Glencore’s trading of metals and minerals was $1.24 billion last year, while energy trading’s earnings were $697 million.
The Swiss company, Viterra, U.S. agricultural trader Bunge Ltd. and Japan’s Mitsui & Co. are among suitors who have expressed an interest in Omaha, Nebraska-based Gavilon, people familiar with the matter said March 6.
Viterra is based in the same province as Potash Corp. of Saskatchewan Inc., which in 2010 fended off a $40 billion hostile bid from Australia’s BHP Billiton Ltd. The Canadian government blocked BHP’s offer, saying the sale of the world’s largest fertilizer company wouldn’t provide a “net benefit” to the country.
Under Canada’s foreign-takeover legislation, known as the Investment Canada Act, foreign acquisitions of companies with assets worth more than C$312 million ($314 million) are reviewed by the federal government to determine whether the transaction is beneficial to the nation.
The federal government should block any foreign takeover of Viterra under that law, Pat Martin, a New Democratic Party lawmaker, said by telephone on March 9.
Richard Walker, a spokesman for Industry Canada, deferred comment to colleagues at Canada’s agriculture ministry.
To contact the reporters on this story: Jesse Riseborough in London atjriseborough@bloomberg.net; Matthew Campbell in London at mcampbell39@bloomberg.net
To contact the editor responsible for this story: Simon Casey at scasey4@bloomberg.net
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