Bunge, a US grains trader, and Viterra, funded by Glencore, announced their merger on Tuesday. The combined company would be in the agricultural trading business worth around 34 billion dollars, including debt.
As a result of the merger, which values Bunge and Viterra at nearly $17 billion apiece, the merged business will be more competitive globally than its top rivals Archer-Daniels-Midland and Cargill. But because Bunge will cover a sizable portion of the acquisition's cash costs, its stockholders will retain around 70% of the company.
The size of the agreement is unheard of in the world of agriculture. Following record-breaking adjusted earnings in 2022, Bunge benefited from limited grain supplies around the world as a result of the conflict in Ukraine. Bunge shares increased over 2%.
Under the terms of the agreement, Viterra stockholders will get approximately $2 billion in cash as well as 65.6 million shares of Bunge stock, valued at approximately $6.2 billion.
Viterra's $9.8 billion in debt will also be taken on by Bunge, it was announced in a joint statement.
After the merger, which is anticipated to occur in mid-2024, stockholders of Viterra will hold 30% of the joint company.
Greg Heckman, the chief executive, stated in an interview that the businesses are highly complementary and they have spent years examining the strategic merit of how the teams and assets work together. Things just happened to align.
Analysts claim that Bunge, the largest processor of oilseeds in the world, and Viterra's crushing operations may come under scrutiny from regulators in Canada, Argentina and other countries.
According to a statement from a regulator spokeswoman, Canada's antitrust authority will examine the proposed combination. According to a government source, the merger has not yet been officially announced to Argentina's competition agency.
Requests for response from the American Department of Justice and the European Union's antitrust authorities went unanswered.
Based on information from shipping firm Cargonave, Bunge was the biggest exporter of maize and soybeans from Brazil in the previous year. Brazil is the world's top producer of these staple crops for generating animal feed and biofuels. Viterra was the third-biggest exporter of maize and the No. 7 shipper of soybeans.
Viterra acquired Gavilon last year, which allowed it to grow its grain buying and selling business throughout the US. The acquisition will strengthen Bunge's grain export and oilseed processing in the second-largest exporter of corn and soy, where it is less present than ADM and Cargill.
The agreement also increases Bunge's capability for handling and storing grain physically in Australia, a significant exporter of wheat, where the business presently runs only two grain elevators along with a port terminal at the country's western region. In Western Victoria and South Australia, Viterra operates six bulk grain exporting terminals and 55 storage facilities.
According to Fitch Ratings, if the merger concludes as expected, Bunge's BBB rating might be upgraded to BBB+.
The combined firm will be managed by Bunge's management team, which is overseen by CEO Greg Heckman, who assumed the position in 2019 while the company was a target for acquisition.
Heckman coordinated a portfolio assessment that convinced Bunge to cut costs or get rid of failed ventures like the milling of wheat in Mexico and South American sugar in favor of expanding its core edible oil business. Following a streak of quarterly declines in 2018, the company posted record earnings the following year. From 2008 to 2015, Heckman was in charge of Gavilon.
The Consumer Federation of the US asserted that the agreement would lessen competition among farmers' crops and concentrate the processing of oilseeds needed to produce plant-based food and biofuel during a time when Biden administration is actively attempting to foster economic competition.
To accelerate the deal's accretion to adjusted profit, Bunge said it will buyback $2 billion of its stock.
Both CPPIB and British Columbia Investment Management Corp announced their approval for the transaction, demonstrating that all Viterra shareholders are in favor of it. 12% of the new business, according to CPPIB, will be owned by it.
When Bunge buys Viterra, its revenue, a total of $67.2 billion by 2022, will be closer to ADM's, which had sales of about $102 billion the previous year.
Within three years, the combination is anticipated to produce operational efficiencies worth around $250 million annually in gross pre-tax.