Glencore Makes Takeover Approach to Bunge -- 4th Update

By Dana Mattioli, Jacob Bunge and Scott Patterson Features Dow Jones Newswires

Glencore PLC said Tuesday it has approached grain trader Bunge Ltd. about a merger, a deal that would make the Swiss mining giant a major player in the U.S. agriculture market.

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In confirming the approach, Glencore said there is no certainty such a combination will materialize. If a deal does emerge, it would be substantial: Bunge had a market value earlier Tuesday of nearly $10 billion; including debt, its so-called enterprise value was about $15 billion. After The Wall Street Journal first reported on the approach, Bunge shares surged as much as 17%.

Glencore is a mining and commodity-trading powerhouse with a market value of GBP42.3 billion ($55 billion). An acquisition of Bunge, one of the world's largest traders and processors of commodities like soybeans and corn, would give Glencore a major presence in the U.S., a long-held goal of Chief Executive Ivan Glasenberg.

A deal would also signal that Glencore has recovered from a turbulent period two years ago when the company faced questions about its solvency.

With $42.9 billion in sales last year, Bunge is among the biggest and oldest of the grain-trading giants that control the flow of crops from farmers' fields to food plants and livestock operations. It possesses an armada of grain terminals, processing plants and related assets throughout the Americas. Along with Archer Daniels Midland Co., Cargill Inc. and Louis Dreyfus Co., Bunge is a member of the so-called ABCD club that dominates global agribusiness.

The White Plains, N.Y., company traces its roots to a Dutch firm founded in 1818. Its controlling families, the Bunges and Borns, moved the company to South America and eventually the U.S. as it grew to become the world's largest processor of oilseeds like soybeans, Brazil's largest exporter of agricultural commodities and a major marketer and processor of U.S. crops.

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The company launched an initial public offering in 2001 and rode a commodity boom that ran from 2007 to 2013, but since then it has been hampered by a series of record-breaking harvests in the U.S. and South America that have put pressure on grain prices.

Bunge in February reported a 6% decline in net income for 2016 and in May cut its profit projection for this year. The global grain glut has left farmers in many of the world's breadbaskets unwilling to sell crops at cut-rate prices, leaving companies like Bunge with less to trade and process. Meanwhile, some grain buyers, like food processors and meat companies, have been hesitant to purchase commodities in advance since prices are expected to stay low. Soren Schroder, Bunge's CEO, said in May that the standoff has left the global grain-trading system "frozen."

Mr. Schroder has said the grain business is ripe for consolidation, given the industry's struggles to translate a historic flood of crops into consistent profit growth. "It is very clear that there are too many, too many trying to do the same thing with a small margin," Mr. Schroder told investors at a recent event.

Bunge's recent strategy has been to strike joint ventures and partnerships with smaller companies to run mills and processing plants more profitably. However, Mr. Schroder said recently that "if there was something bigger, we're open to it."

Glencore's agriculture business posted $22 billion in revenue in 2016, compared with $66.3 billion for its metals and mining operations. It is one of the world's biggest marketers of wheat, feed barley, canola and sunflower products and is a major exporter from Russia, the European Union, Canada and Australia, though it has little presence in the U.S. It has about 14,000 employees world-wide, with 274 storage and handling facilities in 17 countries, according to Glencore's website.

Like most other Glencore businesses, the firm's agriculture outfit trades heavily in the products it produces around the world. Marketing activities in 2016 accounted for 85% of the group's revenues.

Glencore's Mr. Glasenberg is a prolific deal maker. The former coal trader was part of a team that ousted founder Marc Rich in 1994. In 2002, Mr. Glasenberg became the company's CEO and later took Glencore public.

In 2012, Glencore agreed to buy Canadian grain-marketing and distribution company Viterra Inc. for about $6 billion. The next year, Glencore merged with Xstrata PLC, a diversified mining giant. In 2014, Glencore approached Rio Tinto about a merger that could have created the world's biggest publicly traded miner, but was rebuffed.

A world-wide slide in commodity prices forced Glencore to sell a 40% stake in its agricultural business to the Canada Pension Plan Investment Board last year, among a range of moves to raise money and reduce a heavy debt burden. That deal gave Glencore's agricultural division its own board and put it on course for a potential IPO in about seven years. Glencore sold an additional 9.99% stake in the agricultural unit to British Columbia Investment Management Corp., another pension fund, for $625 million last June.

While Glencore's agriculture business has grappled with the same challenges its larger peers have, the parent company has regained its footing. Since its share price plummeted in late 2015 due to investor fears over its debt, Glencore has returned to profit thanks to surging prices for copper, coal and zinc. The Swiss firm has sharply reduced its debt load, and its shares have gotten back most or all of the earlier decline.

--Ben Dummett contributed to this article.

Write to Dana Mattioli at dana.mattioli@wsj.com, Jacob Bunge at jacob.bunge@wsj.com and Scott Patterson at scott.patterson@wsj.com

(END) Dow Jones Newswires

May 23, 2017 16:11 ET (20:11 GMT)