Grain powerhouse ADM makes Bunge takeover approach
Deal would combine two of the world’s four largest grain merchants
US agribusiness Archer Daniels Midland has approached its rival Bunge about a potential takeover that would combine two of the world’s four largest grain trading houses, three people briefed on the matter said.
ADM’s approach comes eight months after Swiss commodities trader Glencore proposed a tie-up with Bunge, setting the scene for a potential bidding war.
Glencore and Bunge had signed a standstill agreement that prevented any further talks between the two companies until February. It was unclear whether Bunge, which had a market capitalisation of about almost $11bn on Friday evening, is interested in pursuing a deal with ADM, said one person briefed about the situation.
Along with Cargill and Louis Dreyfus, ADM and Bunge constitute the so-called ‘ABCD’ of global grain traders, buying millions of tonnes of corn, soyabeans and wheat from farmers for processing into food or export to booming markets such as China.
In the summer Bunge chief executive Soren Schroder left a door open to a possible transaction, saying that the suburban New York-based company would seriously evaluate any offer that would generate shareholder value. However, he has emphasised partnerships and joint ventures as a means of consolidating an industry suffering from too much capacity.
A combination of Bunge and ADM would face serious pressure from antitrust authorities to divest assets especially in the US and Canada, an industry executive said. This could offer an opportunity for Glencore or another company to acquire those assets without engaging in a bidding war for the whole of Bunge.
It is unclear whether Glencore would renew its interest in a deal after the standstill agreement ends as the commodities group is concerned about a recent decline in profitability at Bunge, said people familiar with its thinking.
Bunge, which is incorporated in Bermuda, has no poison pill or bylaws that would allow it to fend off an unsolicited approach, making it vulnerable to a hostile takeover.
Its shares spiked in the last minutes of trading on Friday to end 11.3 per cent higher, and gained another 1 per cent in after-hours trading after the Wall Street Journal first reported the talks. ADM’s stock rose a little over 1 per cent in after-hours trading, giving the Chicago-based company a market value of nearly $23bn.
ADM and Glencore declined to comment, while Bunge did not respond to a request for comment.
While demand for grains continues to grow, agricultural traders have struggled as a succession of bumper crops has depressed prices and curtailed trading opportunities.
Farmers have built up their own storage bins, allowing them to wait for more favourable prices before selling harvests to traders. Consumer food companies, recognising the state of plenty, have been reluctant to pay traders a premium for firm supplies.
In some locations, grain merchants have overbuilt ports and silos needed to handle flows of grain and oilseeds, whittling down profit margins. In November, Mr Schroder cited “a growing understanding within the industry that something has to change, particularly in the US”.
ADM dates to 1902. It is the most US-weighted of the ABCD companies, with more than half its processing plants and nearly three-quarters of its procurement facilities located in the country. It has sought to expand its global reach, including through an attempt to take over Graincorp of Australia that was blocked by local authorities.
Bunge was founded in 1818 in Amsterdam, moved its headquarters to South America in the early 20th century and resettled in New York before its public listing in 2001. Reflecting its history, it has an important presence in South American soyabeans, corn and sugarcane, in addition to assets elsewhere.