By Jasmine NgJun

U.S. agribusiness Bunge Ltd. agreed to buy Glencore Plc-backed Viterra for $8.2 billion in stock and cash, creating a trading giant capable of competing with the world’s biggest agricultural players.

Viterra shareholders will eventually own about 30% of the combined business after the transaction, the companies said Tuesday in a joint statement. Roughly 75% of the payment would be made in Bunge stock, and another 25%, or $2 billion, in cash. 

Combining the two will create a trader big enough to take on the industry’s elite: Minneapolis-based Cargill Inc. and Chicago’s Archer-Daniels-Midland Co. The deal is the culmination of Bunge Chief Executive Officer Greg Heckman’s transformation of the once troubled St. Louis-based crop trader into a cash-rich oilseeds champion. 

Glencore shares jumped as much as 5.2% in London. Bunge fell by 1%. Bloomberg News first reported the talks about a potential combination last month. 

Bunge headquarters in Chesterfield, Missouri, on Wednesday, Feb. 15, 2023.

“The diversification that we get from these businesses really helps offset all of the challenges that we’ve seen,” whether it’s the trade war, the pandemic, war, inflation or regional droughts, Heckman said in a call with analysts. 

He also highlighted that the global population will continue to grow, so more investment will be needed in infrastructure to connect producers and consumers.

Related:Glencore’s Viterra in merger talks with grain rival Bunge

For most of its existence, Bunge was primarily a crop merchant. Its expansion to the Americas saw it become the B in the storied ABCD quartet of trading houses that dominated agricultural markets, which also includes Louis Dreyfus Co.

After a wrong-way bet on soybean prices resulted in a surprise quarterly loss in 2018, Heckman took the helm at Bunge, cutting costs, selling under-performing businesses and focusing on risk management. The company has also benefited from the market turmoil and volatility caused by the war in Ukraine, while a boom in renewable diesel has helped underpin profits.

Heckman highlighted the complimentary nature of Bunge and Viterra, and mostly dodged detailed answers to questions about antitrust. Argentina is one of the countries where the two businesses have the biggest overlap. 

Glencore has flirted with the idea of a deal with Bunge on and off for years. In 2017, it approached Bunge about a friendly takeover, but was publicly rebuffed. Since then, Bunge has replaced its new chief executive officer and other senior executives. 

Unlocking Value

The merger will offer a way for Glencore CEO Gary Nagle to unlock value from the company’s 49.99% stake in Viterra, which has limited synergies with its wider metals, mining and trading operations. 

“We expect the market to view this proposed transaction favorably as it would help Glencore unlock some value from its shareholding in Viterra,” Morgan Stanley analysts led by Alain Gabriel said in a research note. “The implied valuation is above our assumption for the company’s share in Viterra.”

Bunge will assume $9.8 billion of Viterra debt. It also plans to repurchase $2 billion of its own stock. After the buyback, Viterra shareholders will own 33% of the merged company. 

“We want to be in the market as soon as possible and we expect a portion of these repurchases will be executed prior to close, with the remainder to be completed within 18 months of close,” Bunge Chief Financial Officer John Neppl said in the call with analysts.

Neppl also moved to reassure employees about their future jobs, adding that he doesn’t expect significant savings from a headcount reductions. Heckman also stressed the value of talent and said it had been a limiting factor for both companies to grow. 

The merger is expected to close in mid-2024, subject to regulatory approvals and approval by Bunge shareholders. The combined company will be led by Heckman and Neppl. Viterra CEO David Mattiske will join the Bunge leadership as co-chief operating officer.

The deal has the support of two of Canada’s biggest pension funds, which have a combined stake of 49.98% stake in Viterra, Bloomberg reported last month. The Canada Pension Plan Investment Board will receive an equity stake of about 12% in the combined company and about $800 million in cash, it said in a statement.

The transaction is fully funded with a financing commitment of $7 billion provided by Sumitomo Mitsui Banking Corporation.

© 2023 Bloomberg L.P.