Glencore Makes Takeover Approach to Bunge -- 5th Update

Glencore PLC has approached grain trader Bunge Ltd. about combining, a deal that would give the Swiss miner a major presence in the U.S. agriculture market at a time when low crop prices have forced farming giants to scale up through mergers.

Glencore said its agriculture unit "made an informal approach to Bunge...regarding a possible consensual business combination." Discussions may or may not take place and there is no certainty there will be a deal, Glencore said. The Wall Street Journal earlier reported news of the approach, which Glencore confirmed with its statement.

If a deal does emerge, it would be substantial. Bunge had a market capitalization early Tuesday of nearly $10 billion. Including debt, its so-called enterprise value was about $15 billion.

Bunge shares surged on the news, closing 17% higher at $81.70.

Glencore is a mining and commodity-trading powerhouse with a market value of $55 billion. An acquisition of Bunge, one of the world's largest traders and processors of soybeans and corn, would vault Glencore into agriculture's global elite and give it a major presence in the U.S. -- a long-held goal of Glencore Chief Executive Ivan Glasenberg.

Buying Bunge would represent a long-term bet by Glencore on a growing and more-affluent global population, which will require 48% more grain and oilseeds by the year 2050, according to United Nations estimates. Bunge's position in the U.S. and Brazil would hand Glencore a major presence in the two largest soybean-producing countries -- and the respective No. 1 and No. 3 in corn, according to U.S. Agriculture Department. Bulking up in agriculture would further diversify Glencore's operations and may help it weather the price swings that make mining a notoriously volatile business.

It would also be a sign Glencore has recovered from a 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 of the grain-trading giants that control the flow of crops from farmers' fields to food plants and livestock operations, using an armada of grain terminals and processing plants 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.

Bunge, which is based in White Plains, N.Y., 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. The company went public in 2001 and rode a commodity boom that ran from 2007 to 2013.

Since then, a string of record-breaking harvests in North and South America has filled farmers' storage bins and sent grain prices plunging. Corn futures are down 55% since peaking in August 2012. The glut has driven some U.S. farmers out of business and pressured profits at the companies that supply seeds, pesticides and fertilizer. It has also hurt companies like Bunge that purchase crops and process them into food, fuel additives and industrial products. Bunge in February reported a 6% decline in net income for 2016 and, in May, cut its profit projection for this year.

Low crop prices have 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, such as 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."

The crop boom has already helped realign the seed and chemical industry. Dow Chemical Co. and DuPont Co., which both sell pesticides and develop genetically engineered seeds, are seeking to combine, and German conglomerate Bayer AG is pursuing regulatory approvals for its planned $57 billion purchase of Monsanto Co., the world's largest crop-seed supplier. Canadian fertilizer giants Agrium Inc. and Potash Corp. of Saskatchewan Inc. are pursuing their own combination.

Glencore's agriculture business posted $22 billion in revenue in 2016, compared with $66.3 billion for its metals and mining operations. It is already 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.

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.

Glencore has regained its footing. Since its shares plummeted in late 2015, Glencore has returned to profit thanks to surging prices for copper, coal and zinc. Its debt load has fallen, and the stock has recovered.

--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 19:13 ET (23:13 GMT)