ADM pursues big merger with grain trader Bunge

CHICAGO/CALGARY: Top US grains merchant Archer Daniels Midland (ADM) Co has proposed a takeover of Bunge Ltd, The Wall Street Journal reported on Friday, a move that could set up a battle for Bunge with Swiss-based rival Glencore Plc.
Large grain traders that make money by buying, selling, storing and shipping crops have struggled in recent years with a global oversupply.
Thin margins have squeezed core commodity trading operations, including those of ADM, Bunge, Cargill Inc and Louis Dreyfus Co.
Together the four are known as the “ABCDs” and dominate the global grains trade.
Consolidation is seen as one remedy.
Glencore last year sought a tie-up with Bunge in what was viewed as a start of a wave of mergers and acquisitions in the industry.
The Journal quoted unnamed sources as saying that ADM had made the approach and that details were unclear.
New York-based Bunge operates in more than 40 countries and is Brazil’s largest exporter of agricultural products, while Chicago-based ADM says it has customers in 160 countries.
Bunge, which has a market capitalization of $9.79 billion, closed up 11.4 per cent at $77.56 on Friday.
ADM has a market cap of $22.64 billion.
ADM said it does not comment on “rumors or speculation” Bunge did not respond to requests for comment.
Grain companies in recent years have expanded into higher-margin sectors, such as food ingredients and aquaculture, to offset weak results and wild swings connected to their traditional business of handling crops.
In 2014, ADM bought natural ingredient company Wild Flavors for about $3 billion in its biggest deal ever.
The company has also broadened into handling healthy ingredients such as fruits, nuts and “ancient grains.”
“News of the ADM bid is a bit surprising given that ADM had been indicating the company’s strategic direction was more towards value-added rather the traditional commodities,” said Farha Aslam, analyst for Stephens Inc.
ADM is the most US-focused of the major grain companies and a takeover would help it grow in South America, where Bunge is a major agricultural force.
ADM, which dates back to 1902, has tried to expand its international operations in part to take advantage of growing demand from China.
In 2013, Australia rejected its attempted $2.55 billion takeover of Australian grain handler GrainCorp Ltd on concerns it could reduce competition.
Bunge was founded in Amsterdam 200 years ago.
It moved its headquarters to South America as its operations grew in the region and relocated to New York ahead of an initial public offering in 2001.
Aslam estimated that fair value for Bunge in a takeover would be $90 to $95 per share.
Morningstar said Bunge could go for about $90 to more than $100 per share.
Any tie-up would likely face stiff scrutiny from regulators and opposition from farmers who fear handing more market control to ADM could hurt prices paid for wheat, corn and soybeans.
The biggest overlap between ADM and Bunge in the United States is in grain origination and oilseeds processing, Aslam said.
The companies would probably need to divest facilities in North America and also possibly in Europe, she said.
Aslam also said it was possible ADM and Glencore could partner in a bid for Bunge to split up its operations.
“ADM would take the more value-added downstream businesses and Glencore would own the more ag commodity businesses,” she said.
Glencore could not immediately be reached for comment.— Reuters