Grain and oilseed processor Bunge Ltd. said Tuesday it has agreed to combine with Rotterdam-based Viterra Ltd. in a cash-and-stock deal valued at about $18 billion, including debt.
Shareholders of Viterra, which is backed by Glencore PLC
GLEN,
will receive 65.6 million Bunge shares
BG,
valued at $6.2 billion and about $2 billion in cash. Bunge will assume $9.8 billion of Viterra debt, which is linked to about $9 billion of highly-liquid Readily Marketable Inventories. Bunge has further committed to buying back $2 billion of its own stock within 18 months of the deal closing.
The combined company is expected to create a global agribusiness that is “well positioned to meet the demands of increasingly complex markets and better serve farmers and end-customers,” the companies said in a joint statement.
“We’re bringing together two highly complementary businesses. It’s simply just a great, great strategic fit, and it gets us where we wanted to go faster, better, and with less risk,” Bunge Chief Executive Greg Heckman told analysts on a call to discuss the deal, according to a FactSet transcript.
Bunge has a strong presence in the U.S., Brazil and Europe but only a modest presence in other key regions, he said. Viterra has a footprint that extends to the U.S., Canada, Australia, Europe and Argentina.
“Viterra is also a leading seaborne merchant that has successfully developed extensive direct origination capabilities with farmers in many key origins, as well as a strong presence in key demand markets, supplying over 125 countries with agricultural products,” he said.
The deal is expected to close in mid-2024 and to generate about $250 million of annual gross pretax operational synergies within three years of completion. The deal is expected to boost adjusted per-share earnings for Bunge one year after closing.
Viterra shareholders will own about 30% of the combined company and about 33% after the stock buyback.
“Our highly complementary asset footprints will create a network that connects the world’s largest production regions to areas of fastest-growing consumption, enhancing the geographical balance and adaptability of our global value chains and benefiting farmers and end-customers,” said Heckman.
Heckman will remain CEO of the combined company and Bunge’s Chief Financial Officer John Neppl will retain his role. Viterra CEO David Mattiske will become co-chief operating officer. The company will be named Bunge and based at the company’s headquarters in St. Louis.
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Glencore and Canada Pension Plan Investment Board (CPP) will enter a shareholder agreement with Bunge at the close and will initially be allowed nominate two Bunge board members.
CPP said it would receive a 12% position in the combined company. CPP Investments has been a 40% owner of Viterra since 2016.
S&P Global Ratings upgraded Bunge to BBB+ from BBB on the news.
“Bunge, pre this transaction, continues to maintain very low leverage, which has provided it with the balance sheet flexibility to consummate this transformational acquisition without materially pressuring its credit measures,” the rating agency said in a statement.
The company has sustained debt to EBITDA of below 1.5 times for two straight years as its core agribusiness segment has benefited from a combination of strong oilseed crush and merchandising margins while the margins in its specialty oils segment have benefited from strong food and renewable feedstock demand, said the statement.
S&P is expecting the company’s leverage to remain near or below 1.5 times for the next few quarters prior to the merger closing, when it’s expected to rise to about 1.7 times.
“We project the combined entity will sustain leverage below 2x, supporting a potential upgrade to ‘A-‘ if the acquisition closes without any material regulatory impediments,” said S&P.
Bunge shares were last up 1.8%, but have fallen 4% in the year to date, while the S&P 500
SPX,
has gained 13%.
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