M&A activity heating up in mining and agribusiness

Mike Kapsch
0 Comments|March 30, 2012

Glencore’s aggressive ambitions are poised to set off a wave of takeovers in the grain sector, which could include these companies

On February 6, I wrote about a potential blockbuster merger between commodity trading giant Glencore and global mining firm Xstrata.

The next day, the two companies confirmed their interests in an all-share merger totaling $90 billion. It’s the biggest potential mining merger in history.

Instantly, the combined firms would become the world’s largest thermal coal exporter, the largest zinc producer and third-largest copper miner.

Yet it could be a while before the merger is complete.

As the Wall Street Journal reports, “It may take until early 2013 for the mining mega-merger to win regulatory approval from the EU – as well as the U.S., China, South Africa and Canada – and to win over reluctant shareholders.”

Also, with no other companies bidding up Xstrata, Glencore is in no rush to change its terms any time soon.

So as the world waits, both firms have continued searching for more M&A opportunities.

And Glencore just found a big one. It just purchased Viterra Inc. (TSX: T.VT, Stock Forum) for $6.2 billion.

(Our experts recommended Viterra to Investment U Plus subscribers on January 19. With a healthy boost from Glencore’s premium, Viterra is up 50% since our recommendation.)

Glencore moves in on AgriBusiness

Based out of Regina, Canada, Viterra is Canada’s largest grain handler.

With a market cap of $5.9 billion, the company has extensive operations across Western Canada and Australia. It also owns facilities in the United States, New Zealand and China.

Viterra’s business is managed through three interrelated segments: grain handling and marketing, agri-products, and processing.

By purchasing Viterra, Glencore will instantly make itself a major player in the global agribusiness. That’s because Canada and Australia are among the top grain exporting nations worldwide.

Until now, Glencore has only had a 9% share of the global grain market.

Like Xstrata, Glencore must again wait for regulatory approval before it can acquire Viterra. But it shouldn’t have the same issues it’s having with Xstrata.

You see, as soon as the deal goes through, Glencore will sell the majority of Viterra’s Canadian assets to Agrium Inc. (NYSE: AGU, Stock Forum) and Richardson International, two Canadian agribusiness firms.

Reuters says, “By divesting some grain elevators, mills and farm-supply dealers, the Swiss-based trader aims to allay concerns that Ottawa might block the deal on national sovereignty or competition grounds.”

You may be wondering then, why is Glencore even buying Viterra if it’s just going to disband the company and sell much of it?

As you’ll see, it’s all part of Glencore’s strategy.

Slew of potential takeovers

This August, the Canadian government will end the Canadian Wheat Board’s monopoly on marketing and producing wheat and barley in Western Canada.

As Canada’s largest grain handler, Viterra is in a prime position to pick up business when the government mandated monopoly is officially over.

By buying Viterra, Glencore is now set to gobble up this market share and become a major competitor with the likes of Archer Daniels Midland (NYSE: ADM, Stock Forum), Bunge Limited (NYSE: BG, Stock Forum), and Cargill.

But Glencore isn’t stopping at Viterra…

The company’s director of agricultural products, Chris Mahoney, says Canada is “…a platform for our North American agricultural operations, and in the future, we will look to expansion, with Regina as the headquarters, into the United States.”

Commodity investors will be monitoring the grain industry throughout this summer.

That’s because Glencore’s aggressive ambitions are poised to set off a wave of takeovers in the grain sector…

  • Gavilon Group, a privately-owned U.S. grain trader, already put itself up for sale for an estimated $5 billion. Glencore is speculated as a potential suitor.
  • Legumex Walker (TSX: T.LWP, Stock Forum), a small specialty seeds firm based out of Winnipeg, Canada could end up a takeover target.
  • In Australia, GrainCorp ) and Goodman Fielder are regarded as a potential takeover candidates.
  • And the Financial Times reports, “Industry executives stretch the list of potential targets in the grain sector to include… CHS Inc. (NASDAQ: CHSCP, Stock Forum)” as well.

It’s uncertain what effect all of this will have on food prices. But don’t be surprised if the answer ends up being not much. Still, you can find some great opportunities to offset your food costs by keeping a watchful eye on this exciting development.

 


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