US cereals merchant Bunge and Glencore-backed Viterra are merging to establish a $34 billion agricultural trading behemoth, including debt, the companies announced on Tuesday, in a transaction that will likely be subject to stringent regulatory scrutiny.
Bunge and Viterra are valued at approximately $17 billion each, bringing the combined company closer in size to major competitors Archer-Daniels-Midland and Cargill (CAG.UL). However, Bunge shareholders will own approximately 70% of the company, as Bunge will pay for a significant portion of the transaction with cash.
The magnitude of the transaction is unprecedented in the global agriculture industry. It follows Bunge’s record-breaking adjusted profits in 2022, which were a result of the conflict in Ukraine restricting global grain supplies.
The price of Bunge stock increased by more than 2 percent.
Under the terms of the agreement, Viterra shareholders will receive approximately 65.6 million shares of Bunge stock, valued at approximately $6.2 billion, and approximately $2 billion in cash.
Viterra’s $9.8 billion in debt will also be assumed by Bunge, according to a joint statement.
Following the anticipated closure of the transaction in the middle of 2024, Viterra shareholders will own 30% of the combined company.
“The companies are highly complementary,” said Greg Heckman, chief executive officer, in an interview. The strategic value of how the assets and teams integrate together is something we’ve considered for years… Things finally fell into place.”
The parameters of the agreement were first disclosed by Reuters on June 8.
Bunge is already the largest oilseed processor in the world, and analysts believe that it and Viterra’s pulverizing operations could be subject to regulatory scrutiny in Canada, Argentina, and elsewhere.
The Canadian antitrust regulator will evaluate the proposed merger, according to a statement from the regulator’s spokesperson. According to a government source, Argentina’s competition bureau has not yet received formal notification of the merger.
The United States Department of Justice and European Union antitrust regulators did not respond to requests for comment.
According to data from shipping agent Cargonave, Bunge was the largest exporter of maize and soybeans from Brazil in 2012, the world’s leading source of the staple commodities for producing animal feed and biofuels. Viterra was the third-largest exporter of maize and the seventh-largest of soybeans.
Through the acquisition of Gavilon last year, Viterra’s operation of purchasing and selling grain in the United States grew. The merger would strengthen Bunge’s grain exporting and oilseed processing operations in the world’s No. 2 exporter of maize and soy, where ADM and Cargill have a larger presence.
The transaction also expands Bunge’s physical grain storage and handling capacity in Australia, a significant wheat exporter where the company presently operates only two grain elevators and a port terminal in the country’s western region.
Viterra has 55 storage locations in South Australia and western Victoria, as well as six export terminals for bulk grains.
Fitch Ratings stated that its BBB rating for Bunge could be upgraded to BBB+ if the transaction proceeds as planned.
John Neppl, the chief financial officer of Bunge, stated in an interview that sustained annual earnings of $4 billion are “a very reasonable target” for the company after the merger.
Transaction May Reduce Competition
The combined entity will be managed by the management team of Bunge, commanded by CEO Greg Heckman, who assumed the position in 2019 when the company itself was a takeover target.
Heckman oversaw a portfolio evaluation that led Bunge to scale back or sell underperforming operations such as its South American sugar and Mexican wheat milling businesses and invest in its core edible oils business. After a string of quarterly losses in 2018, the corporation declared record earnings in 2017. Heckman was formerly the leader of Gavilon from 2008 to 2015.
The Consumer Federation of America stated that the agreement would reduce competition for farmers’ commodities and consolidate the processing of oilseeds used to produce plant-based foods and biodiesel at a time when the Biden administration is broadly attempting to promote economic competition.
The Federation’s director of food policy, Thomas Gremillion, stated, “Further concentration is likely to harm consumers and businesses, such as plant-based food producers, that rely on these commodities.”
Bunge stated that it intends to repurchase $2 billion of its stock to increase the deal’s contribution to its adjusted profit. The transaction is supported by a $7 billion financing commitment from Sumitomo Mitsui Banking Corporation (SMBC).
Canada Pension Plan Investment Board (CPPIB) and British Columbia Investment Management Corp announced their support for the transaction, indicating that all Viterra shareholders are on board. CPPIB stated that it would own 12 percent of the combined firm.
In Ukraine, the top sunflower producer and largest supplier of sunflower oil in the world, a merged Bunge-Viterra would operate three oilseed processing facilities in the country’s south and east, in Kharkiv, Dnipro, and Mykolaiv.
Acquiring Viterra would bring Bunge’s revenue, which was $67.2 billion in 2022, closer to that of ADM, which generated nearly $102 billion in sales in the same year.
Within three years, the merger is anticipated to generate approximately $250 million in annual gross pre-tax operational synergies.