US grain merchants Bunge and Glencore-backed Viterra are merging to create an agricultural trading giant worth about $34 billion, including debt, in a deal likely to receive close regulatory scrutiny.
The deal, announced Tuesday, brings the combined company closer on a global scale to leading rivals Archer-Daniels-Midland and Cargill. It values Bunge and Viterra at about $17 billion each. However, Bunge shareholders will own about 70 percent of the company, as Bunge will pay a significant portion of the deal in cash.
The deal is unprecedented in the global agricultural sector. It comes after Bunge posted record adjusted profits in 2022, taking advantage of tight global grain supplies due to Russia’s war against Ukraine.
Bunge’s share rose by more than 2 percent.
Under the deal, Viterra shareholders will receive approximately 65.6 million Bunge shares, valued at approximately $6.2 billion, and approximately $2 billion in cash.
Bunge also assumes $9.8 billion of Viterra’s debt, according to a joint statement.
Viterra shareholders will own 30 percent of the combined company after the deal is expected to close in mid-2024.
“The companies are very complementary,” Bunge CEO Greg Heckman told Reuters news agency. “The way the resources and teams fit together, the strategic merit is one that we’ve been looking at for years… Things are finally aligned.”
Bunge is already the world’s largest processor of oilseeds, and analysts say it and Viterra’s crushing companies could face regulatory scrutiny in Canada, Argentina and elsewhere.
Canada’s antitrust regulator will review the planned merger, a spokesman for the regulator said in a statement. Argentina’s competition agency has not yet received formal notification of the merger, a government source said.
The US Department of Justice and antitrust regulators in the European Union did not respond to requests for comment.
Last year, Bunge was the top exporter of Brazil’s corn and soybeans, the world’s leading source of staple crops for making animal feed and biofuels, according to data from freight forwarder Cargonave. Viterra was the third largest exporter of corn and the seventh largest shipper of soybeans.
In the US, Viterra’s grain buying and selling business expanded last year with the acquisition of Gavilon. The merger will strengthen Bunge’s grain exporting and oilseed processing businesses in the US, the world’s second largest corn and soybean exporter, where it has a smaller presence than ADM and Cargill.
The deal also expands Bunge’s physical storage and processing capabilities in major wheat exporter Australia. The company currently operates only two grain elevators and a port terminal in the western part of the country. Viterra has 55 storage sites in South Australia and Victoria and six bulk grain export terminals.
A sustained annual profit of $4 billion is “a very reasonable goal” for the company after the merger, John Neppl, Bunge’s chief financial officer, told Reuters.
Reduced competition
Bunge’s management team, led by CEO Heckman who took the top role in 2019 when the company itself was a takeover target, will oversee the combined entity.
Heckman oversaw a portfolio review that led to Bunge scaling back or selling underperforming businesses such as South American sugar and Mexican wheat milling and investing in its core edible oils business. The company reported record profits last year after a string of quarterly losses in 2018. Heckman previously led Gavilon from 2008 to 2015.
The Consumer Federation of America said the deal would reduce competition for farmers’ crops and consolidate the processing of oilseeds used to make plant-based foods and biofuels at a time when the White House is broadly trying to cut competition in promote the economy.
“Further concentration appears likely to harm consumers and businesses, such as plant-based food producers, who rely on these raw materials,” said Thomas Gremillion, the Federation’s director of food policy.
Bunge said it plans to buy back $2 billion of its shares to improve the deal’s accretion to adjusted earnings. The deal is backed by a $7 billion financing commitment from Sumitomo Mitsui Banking Corporation (SMBC).
Canada Pension Plan Investment Board (CPPIB) and British Columbia Investment Management Corp said they agreed to support the deal, indicating that all Viterra shareholders are on board. CPPIB said it would own 12 percent of the combined company.
In Ukraine, the world’s largest sunflower producer and largest supplier of sunflower oil, a combined Bunge-Viterra would have three oilseed processing plants in the south and east of the country – in Kharkiv, Dnipro and Mykolaiv.
The Viterra acquisition would bring Bunge’s revenues, which reached $67.2 billion in 2022, more in line with those of ADM, which recorded sales of nearly $102 billion last year.