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Glencore Said to Express an Interest in Canada’s Viterra

Glencore International Plc CEO Glasenberg
Ivan Glasenberg, chief executive officer of Glencore International Plc, is looking to expand his North American grain business. Photographer: Jerome Favre/Bloomberg

Glencore International Plc, the largest publicly traded commodities supplier, has expressed an interest in acquiring Canada’s biggest grain handler Viterra Inc., according to a person familiar with the situation.

Other companies may also be studying Viterra, said the person, who declined to be identified because the details haven’t been made public. Closely held grain distributor Cargill Inc. has expressed an interest, the Wall Street Journal reported, citing people it didn’t identify. Viterra has gained 30 percent since saying last week it had received approaches, giving it a market value of C$5.37 billion ($5.41 billion).

Glencore Chief Executive Officer Ivan Glasenberg is looking to expand his North American grain business even as he pursues a 22.5 billion pound ($35.2 billion) takeover of Swiss metals and coal producer Xstrata Plc. U.S. agricultural trading companies Bunge Ltd. and Archer Daniels Midland Co. also may make approaches for Viterra, according to Aston Hill Financial Inc., an investor in the Canadian company.

“A bidding war for Viterra could emerge and a large price will need to be paid,” Belinda Moore, a Brisbane-based analyst with RBS Morgans Ltd., said today in a report.

Viterra advanced 6.4 percent to close at C$14.45 in Toronto. Glencore gained 0.7 percent to 411.35 pence in London.

Largest Share

Holly Gibney, a spokeswoman for Regina, Saskatchewan-based Viterra, declined to comment, referring back to a statement on March 9 in which the company said it had received expressions of interest. A spokesman for Baar, Switzerland-based Glencore, and Lisa Clemens, at Cargill, wouldn’t comment. Glencore’s interest in Viterra was reported earlier by the Sunday Telegraph.

Buying Viterra would give Glencore the largest share of the Canadian grain-handling market just as the Canadian Wheat Board’s monopoly in wheat and barley grown in the west of the country ends. The acquisition may add C$175 million in profit, or 3 percent of Glencore’s net income for 2013 based on current forecasts, BMO Capital Markets analyst Tony Robson said today.

Viterra’s share of Canadian grain-handling may expand to almost 50 percent in the next few years from 45 percent, Chief Executive Officer Mayo Schmidt said in an interview on March 8.

“This mooted acquisition has credibility,” Dominic O’Kane and Ash Lazenby, analysts at Liberum Capital Ltd. in London, said in a note. “The timing looks attractive given that the Canadian Wheat Board’s monopoly over wheat and barley is about to terminate.”

Monopoly Ends

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. Glencore is also among companies interested in closely held U.S. 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. “If Xstrata doesn’t happen, they’re getting on with growing the business anyway.”

“We 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 Glencore’s $10 billion initial public offering last May. “We’ll 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 agricultural trading 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 trading metals and minerals was $1.24 billion last year, while energy trading’s earnings were $697 million.

Buying Viterra might help Glencore’s agricultural business return to profit after a “difficult year,” Fairfax’s Meyer said. Moving into storage of wheat and other logistics beyond just trading grains would probably help boost margins, he said. An acquisition would boost sales in Glencore’s agriculture unit by 64 percent and more than triple earnings before interest and tax to $937 million, according to BMO’s Robson.

“Viterra has three business segments -- grain handling and marketing, agri-products and processing,” RBS Morgan’s Moore said. “We would question whether Glencore would want the entire business.”

Bunge, ADM

Canadian agricultural supplier Agrium Inc. may bid for Viterra, John Hughes, a Desjardins Securities Inc. analyst in Toronto, said March 9. U.S. agricultural traders and processors Cargill, Bunge and ADM may be interested, said Andrew L.B. Hamlin, a money manager at Aston Hill Financial overseeing about C$5.5 billion of assets including Viterra shares in Toronto.

Susan Burns, a Bunge spokeswoman, David Weintraub, an ADM spokesman, and Todd Coakwell, an Agrium spokesman, all declined to comment on March 9.

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.

As well as being a target for a potential acquisition, Viterra has expressed an interest in Gavilon, as have Japan’s Mitsui & Co. and Singapore-based Wilmar International Ltd. people familiar with the matter said March 6.

Potash Bid

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 foreign-takeover legislation known as the Investment Canada Act, acquisitions of companies with assets worth more than C$312 million are reviewed by the federal government to decide 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, referred requests for comment to colleagues at Canada’s agriculture ministry.

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