Glencore Agrees $6.15 Billion Deal for Canada’s Viterra

Glencore International Plc (GLEN), the largest publicly traded commodity supplier, agreed to buy Viterra (VT) Inc. for C$6.1 billion ($6.15 billion) to add grain assets in Canada and Australia as growth in Asia boosts demand.

Glencore will pay C$16.25 a share, it said in a statement yesterday. Glencore agreed to the deal in partnership with Agrium Inc. (AGU) and Richardson International Ltd., who will buy the majority of Viterra’s Canadian and other assets for about C$2.6 billion in cash, according to the statement.

The Swiss trader’s move on Viterra is part of efforts to extend its geographical reach and expand its agriculture unit in North America. Chief Executive Officer Ivan Glasenberg is also seeking to bolster production of coal and metals through a 22.6 billion-pound ($35.9 billion) friendly takeover of Xstrata Plc (XTA) announced last month.

“While the timing of this acquisition is somewhat surprising in light of Glencore’s ongoing attempt to merge with Xstrata, the strategic rationale is not,” Christopher LaFemina and Seth Rosenfeld, analysts at Jefferies Group Inc., wrote in a note. “We believe this accretive transaction is a modest positive.”

The offer is 48 percent above Regina, Saskatchewan-based Viterra’s closing price of C$10.98 on March 8, the day before Viterra said it had received expressions of interest, according to the statement. Baar, Switzerland-based Glencore plans to fund the acquisition through cash and available credit facilities, it said.

‘Great Deal’

Viterra dropped 0.4 percent to C$15.91 at the close yesterday in Toronto. Glencore fell 1.6 percent to 413.8 pence in London. The deal values Viterra at 14 times earnings before interest and tax, compared with the median of 16 times for 10 comparable deals since 2002, according to data compiled by Bloomberg.

“It looks like it’s going to be a great deal across the board,” Sadiq Adatia, chief investment officer at Sun Life Global Investments in Toronto, which manages about C$9 billion in assets including Viterra stock, said yesterday. “I wouldn’t say there are a ton of players looking for this asset. Nobody wanted to buy the whole piece, so I think that’s where it makes sense.”

Glencore sees annual global demand growth for grains and oilseeds of as much as 3.5 percent, driven by Asia, Director of Agricultural Products Chris Mahoney told reporters yesterday on a conference call. Mahoney said he plans to use the deal as a platform to extend Glencore’s North American grain operations in the U.S.

Gavilon Bid?

“We are looking to expand also in the U.S.,” he said, declining to comment when asked whether the company is interested in acquiring U.S. grain-trading company Gavilon Group LLC, which hired Morgan Stanley in January to explore strategic alternatives.

“It’s no secret that prior to this deal Glencore had very little in North America, in contrast to the assets and the structures and the people we have elsewhere in the world,” Mahoney said.

Wheat and barley farmers in western Canada can sell to buyers other than the Canadian Wheat Board starting Aug. 1, which Viterra has said will boost its earnings and market share. It owns more than half the grain-export capacity in Canada as well as ports in South Australia, which are key gateways to growing markets in Asia, according to the company. Australia is the world’s second-largest wheat exporter, behind the U.S. and ahead of Russia in third spot and Canada in fourth.

‘Strong Position’

“It puts them in such a strong position in terms of grain marketing and handling,” Peter White, president of the South Australian Farmers Federation, said yesterday in a phone interview from Adelaide, the capital of South Australia. “They can control most of the ports and the rail lines” in the state, which exports about 80 percent of the grain it produces, said White, who is also a farmer who has sold grain to Glencore in the past.

The acquisition is “expected to be earnings enhancing to Glencore in the first full-year after consolidation,” according to the Glencore statement. The company doesn’t “expect any issues” with regard to regulatory approvals for the takeover, Mahoney said.

Canada Review

Canada’s Competition Bureau will review the acquisition, spokesman Greg Scott said. There is no fixed timetable for the Ottawa-based government antitrust agency to finish its work, Scott said in e-mailed comments.

Teaming up with Canadian partners has “largely mitigated” the investment risk, BMO Capital Markets said. Canada blocked a hostile takeover of Potash Corp. of Saskatchewan by BHP Billiton Ltd. (BHP) in 2010 on the grounds it wasn’t in the nation’s interest to sell the fertilizer maker.

Viterra said March 19 it was in exclusive talks with a third party for a possible acquisition. It said four days earlier that it had started a sales process following approaches. Archer Daniels Midland Co. was interested in buying Viterra and chose not to submit a final bid, it said yesterday.

“We determined that at the valuation level we anticipated to be competitive, which has been confirmed by the announced deal, the acquisition would not meet our return objectives,” Decatur, Illinois-based ADM’s Chief Executive Officer and Chairman Patricia Woertz said in an e-mailed statement.

Break Fee

Holders of 16.5 percent of Viterra shares, including Viterra executives and senior officers as well as its biggest shareholder, Alberta Investment Management Corp., have pledged support for Glencore’s offer, the Swiss company said.

“We believe such a deal could be financed, and would gain the required regulatory approvals,” Christine Healy and Alexandru Palivan, analysts at Scotia Capital Inc., wrote in a March 19 report. A friendly offer from the group would be “tough to beat” and it’s unlikely potential competing bidders Bunge Ltd. (BG) and ADM could offer more than C$16 a share, they said.

Glencore is entitled to a break-fee of C$185 million should Viterra agree to a superior bid or if Viterra’s board withdraws or modifies its recommendation, it said. A reverse break-fee of C$50 million would be payable to Viterra should the deal be blocked by regulators, according to Glencore.

Profit Gains

Annual earnings before interest, taxes, depreciation and amortization will rise by C$50 million a year after 2014 as Viterra’s market share expands to close to 50 percent from 45 percent, Viterra forecast March 8.

Grain handling and marketing made up 68 percent of Viterra’s sales in the year through Oct. 31 with agricultural products accounting for 19 percent and food processing at 13 percent, data compiled by Bloomberg show.

Agrium will acquire about 90 percent of Viterra’s Canadian retail facilities and all of its Australian retail facilities, it said yesterday in a separate statement. Calgary-based Agrium, North America’s largest fertilizer supplier by revenue, will also buy Viterra’s 34 percent stake in Canadian Fertilizer Ltd. for a total cost of C$1.8 billion, according to the statement from Glencore.

Richardson, the second-largest grain handler in Canada, is a unit of Winnipeg-based James Richardson & Sons Ltd. It agreed to buy 23 percent of Viterra’s Canadian grain-handling assets as well as other operations in North America for C$800 million. Canada is the fourth-biggest wheat exporter after the U.S., Australia and Russia, according to the U.S. Department of Agriculture.

Viterra shareholders will be asked to vote on the transaction in May, according to the statement. The acquisition is expected to close during Viterra’s fiscal third quarter.

Glencore is being advised by Bank of America of Merrill Lynch and RBC Capital Markets. Viterra is being advised by Canaccord Genuity.

To contact the reporters on this story: Jesse Riseborough in London at jriseborough@bloomberg.net; Shruti Singh in Chicago at ssingh28@bloomberg.net

To contact the editors responsible for this story: John Viljoen at jviljoen@bloomberg.net; Simon Casey at scasey4@bloomberg.net

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