Bunge buys Viterra, backed by Glencore, in an $8.2bn deal

Bunge, a global crop merchant, will buy Viterra for $8.2 billion in cash and shares. This deal creates a giant agricultural company that can compete with the biggest trading houses who move grains, oilseeds, and pulses directly from farms to consumers.

The combined group will be in competition with the industry leaders Cargill, Archer Daniels Midland and strengthen Bunge’s position in the major food-supplying regions of the world such as Canada and US.

Viterra’s Glencore shareholders will receive $6.2bn Bunge shares, $2bn cash and a third of the stock after the transaction.

The consolidation follows a bumper year of profits for Bunge, Viterra and others as the Ukraine war caused severe volatility on grain and commodity markets.

Bunge was founded over 200 years ago and has been known for many decades as the “B”, in the ABCD global grain trading company that links farmers with food importers. ADM, Cargill and Louis Dreyfus, all headquartered in Europe, are the other two.

Bunge Chief Executive Greg Heckman said that the merger will help the company to diversify, and it will insulate itself from external changes such as droughts in certain regions caused by climate change.

In an interview, he stated that by combining these two networks, we can diversify in terms of geography and crops. “The asset footprints complement each other.”

Viterra’s roots are in grain-handling cooperatives in Canada’s Saskatchewan province. It also has extensive operations in the US which it acquired through its acquisition of Gavilon in 2022.

Bunge will acquire more than 270 facilities for storage and handling, 30 sites of processing and a fleet exceeding 200 ships. This will help it to expand its presence across the fertile regions in Canada, US, Brazil Argentina and Australia.

Bunge-Viterra combined revenues reached $121bn by 2022. This would place the group on par with Cargill, world’s biggest agricultural commodities company, with revenues of over $165bn for its fiscal year ending May 2022.

Heckman refused to comment on whether regulators would require asset sales as part of an antitrust review. He said, “We are looking forward to engaging with regulators on the regulatory front.”

Viterra’s shareholders, Glencore, Canada Pension Plan Investment Board and British Columbia Investment Management Corp, will be able to profit from the deal at a time of high profits for commodities trading houses.

Glencore shares, the Swiss mining giant and trading company, rose 5.3% in London in response to the news. Bunge shares rose 2.5 per cent in New York.

Bunge will assume Viterra’s $9.8bn debt, which is tied to $9bn of easily marketable inventories. Sumitomo Mitsui Banking Corporation will provide a $7bn funding commitment to fund the transaction.

Chris Johnson, portfolio analysts at S&P Global, said that the transaction would have a positive impact on ratings because it strengthened the position of both companies.

Glencore Agriculture, the agricultural trading arm of Glencore, is no longer. Glencore purchased Viterra a decade earlier for $6.1bn. Glencore’s stake in Viterra was reduced to less than 50% by 2016. The remainder of the shares were held by CPPIB, British Columbia Investment Management Corp.

The sale will boost Glencore’s financial power as it pursues its takeover of Canadian steelmaking coal and copper and zinc producers Teck Resources.

Glencore and Bunge had discussed a Viterra merger with Bunge in 2017 but were rejected.

The companies stated that the deal will generate approximately $250mn in annual cost savings before tax within three years after its completion which is expected to be mid-2024.