CHICAGO/CALGARY, Alberta (P3P) – Prime U.S. grain service provider Archer Daniels Midland Co (ADM.N) has proposed a takeover of Bunge Ltd (BG.N), in keeping with an individual acquainted with the strategy, which might arrange a bidding conflict with Swiss-based rival Glencore Plc (GLEN.L).
Giant grain merchants that earn a living by shopping for, promoting, storing and delivery crops have struggled in recent times with world oversupplies. Skinny margins have squeezed core commodity buying and selling operations, together with these of ADM, Bunge, Cargill Inc [CARG.UL] and Louis Dreyfus Co [AKIRAU.UL], which collectively are often called the “ABCDs” and dominate the trade.
Consolidation is seen as one treatment. Glencore final 12 months sought a tie-up with Bunge in what was considered as a begin of a wave of mergers and acquisitions within the trade.
Bunge, which rebuffed an acquisition provide from Glencore final 12 months, may not observe up on ADM’s proposal, the supply stated, requesting anonymity as a result of the strategy is confidential. A standstill settlement prevents Glencore from making a brand new provide till subsequent month, and Bunge is preserving its choices open for now, the supply added.
White Plains, New York-based Bunge operates in additional than 40 international locations and is Brazil’s largest exporter of agricultural merchandise, whereas Chicago-based ADM says it has prospects in 160 international locations.
Bunge, which has a market capitalization of $9.79 billion, closed up 11.four p.c at $77.56 on Friday. ADM has a market cap of $22.64 billion.
ADM stated it doesn’t touch upon “rumors or hypothesis,” whereas Bunge didn’t reply to requests for remark. Glencore was not instantly out there for remark. The Wall Road Journal first reported on ADM’s curiosity in Bunge.
Grain corporations in recent times have expanded into higher-margin sectors, resembling meals substances and aquaculture, to offset weak outcomes and wild swings of their conventional enterprise of dealing with crops.
In 2014, ADM purchased pure ingredient firm Wild Flavors for about $three billion in its greatest deal ever. The corporate has additionally expanded into dealing with wholesome substances resembling fruits, nuts and “historic grains.”
“Information of the ADM bid is a bit stunning provided that ADM had been indicating the corporate’s strategic route was extra in the direction of value-added slightly the standard commodities,” stated Stephens Inc analyst Farha Aslam.
ADM is probably the most U.S.-focused of the key grain corporations and a takeover would assist it develop in South America, the place Bunge is a significant agricultural pressure.
ADM, which dates again to 1902, has tried to broaden its worldwide operations, partly to benefit from rising demand from China. In 2013, Australia rejected its tried $2.55 billion takeover of Sydney-based grain handler GrainCorp Ltd (GNC.AX) on issues it might scale back competitors.
Bunge was based in Amsterdam 200 years in the past. It moved its headquarters to South America as its operations grew within the area and relocated to New York forward of an preliminary public providing in 2001.
Aslam estimated that truthful worth for Bunge in a takeover could be $90 to $95 per share, however Morningstar stated the value might exceed $100.
Any tie-up would most likely face stiff scrutiny from regulators and opposition from farmers who concern handing extra market management to ADM might damage wheat, corn and soybean costs.
The largest overlap between ADM and Bunge in the US is in grain origination and oilseeds processing, Aslam stated. The businesses would most likely have to divest services in North America and in addition presumably in Europe, she added.
Aslam raised the likelihood that ADM and Glencore might companion in a bid for Bunge to separate up its operations.
“ADM would take the extra value-added downstream companies, and Glencore would personal the extra ag commodity companies,” she stated.
An ADM-Bunge merger would additionally face opposition from farmer teams in key agricultural markets, together with the US, European Union, China, India and Brazil, stated Erik Gordon, a professor on the College of Michigan’s Ross College of Enterprise.
The businesses’ comparatively late transfer into the big-agriculture merger sport, behind DowDuPont (DWDP.N), Nutrien Ltd (NTR.TO) and others, would make gaining regulators’ approval even harder, Gordon stated.
“While you’re the primary one, there’s nonetheless extra competitors,” he stated. “As soon as they’ve let a number of via, they might have second ideas.”
Grain farmers want 5 – 6 energetic patrons to get truthful costs for his or her items, however there are already solely a handful, stated Peter Carstensen, who teaches regulation on the College of Wisconsin at Madison.
“That is the sort of transaction that can screw farmers,” he stated.
Illinois farmer Dan Henebry, who delivers corn and soybeans to ADM’s North American headquarters in Decatur, Illinois, stated he was apprehensive a takeover of Bunge could lead on grain handlers to pay farmers much less for his or her crops.
“We’ve had so many mergers,” Henebry stated. “Much less competitors is just not good.”