By Evan Schnell, Coby Lai, Luca Polsinelli, and Leo Polsinelli (Cornell University), Nikitas Kitsantas and Carlotta Nardello (ESADE)
Photo: Raphael Rychetsky (Unsplash)
Overview of the deal
Acquirer: Bunge
Target: Viterra
Implied Equity Value: $3.08bn
Total Transaction Size: $8.2bn
Closed date: June 13, 2023
Target advisor: Freshfields Bruckhaus Deringer Acquirer advisor: Bank of America (financial) ; Latham & Watkins (legal)
On June 13th, Bunge, a global agribusiness leader involved in the purchase, storage, and transportation of agricultural commodities, announced its acquisition of Viterra, a Canadian-based grain and oilseed marketer and handler. Bunge bought 70% of Viterra’s stock to merge the two companies and form a $34bn agri-trading conglomerate. This merger bolsters Bunge’s already dominant market share in South America and increases Bunge’s ability to compete with industry leaders Cargill and Archers-Daniel-Midland.
As of June 15th, seven companies including Bunge and Viterra control half of the world’s transport of grain and oilseed. Bunge’s acquisition of Viterra increases and stabilizes its market share, allowing Bunge to better control and capitalize on volatile grain prices such as those caused by the Russo-Ukrainian War. As a result of its large market share in the transportation of grain, the merger of Bunge and Viterra is under investigation for violating antitrust law in Canada, Brazil, and Argentina.
Bunge’s acquisition of Viterra increases the collective efficiency of both companies as processing plants and distribution nodes can be shared. This allows produce to reach a wider network of consumers and decreases costs by allowing less effective plants to be shut down.
“Viterra and Bunge are two leading agriculture businesses. In combining our highly complementary origination, processing and distribution networks, we are better positioned to meet the increasing demand for the food, feed and fuel products we offer. Together, we will play a leading role in the future of the agriculture industry, developing fully traceable, sustainable supply chains and moving towards carbon-neutral operations, while creating a strong growth platform for our combined business.” - David Mattiske, Viterra’s Chief Executive Officer
Company Details (Acquirer - Bunge)
Bunge’s international supply chain connects farmers, consumers, and manufacturers to effectively deliver food, fuel, and fertilizer. Bunge is a leading oilseed processor and retailer of bottled vegetable oil as well as an important distributor of fertilizer to South America. Bunge’s largest competitors include Cargill, Archer Daniels Midland, and Louis Dreyfus.
Founded in 1818, headquartered in Chesterfield, MO
CEO: Greg Heckman
Number of employees: 23,000
Market Cap: $17.01bn (as of 08/03/2023)
EV: $21.53bn
LTM Revenue: $63.80bn
LTM EBITDA: $3.37bn
LTM EV/Revenue: 0.3x
LTM EV/EBITDA: 4.2x
Company Details (Target - Viterra)
Viterra Limited is a company focused on the global agricultural product value chain specifically on creating a network of agricultural storage, processing and transport assets. In 2012 Viterra was acquired by Glencore for $6.1 billion. Glencore’s stake was reduced to 50% after selling a minority stake to two other corporations in 2016.
Founded in 1981, headquartered in Rotterdam, Netherlands
CEO: David Mattiske
Number of employees: 17,500+
Gross Assets: $23.5bn
LTM Revenue: $53.9bn
LTM EBITDA: $2.65bn
Projections and Assumptions
Short-term consequences
Viterra’s three shareholders; Glencore, Canadian Pension Plan and British Columbia Management Corporation, will receive $2billion in cash and 65.6 million shares of Bunge stock (equivalent to $6.2bn). For them it provides an opportunity to gain an immediate income on their assets allowing them to pursue other objectives. Glencore will receive $1bn in cash which can be mobilized on acquiring Teck Resources, a Canadian producer.
Furthermore, Vietrra will own one-third of Bunge’s shares, entailing a structural change within Bunge’s Board of Directors. Eight representing Bunge and four Viterra. It is crucial to ensure the right chemistry is created, ultimately the success of the merger depends on their decisions.
For Bunge, not only was their available cash depleted, they will also burden Viterra’s $9.8bn debt. Bunge additionally financed this transaction with a $7bn loan from Sumitomo Mitsui Banking Corporation. Nevertheless, despite the increase in debt both companies are expected to maintain or improve their investment grade. Fitch Rating even hinted at a potential rise from BBB to BBB+ for Bunch.
By combining the two company’s vast networks, Bunge will acquire over 270 storage and handling facilities, 30 processing sites and over 200 ships. The merger will give Bunge access to markets it previously struggled to succeed in. Prior to the transaction, in Australia Bunge only operated 2 grain elevators and a single port terminal in the west. In contrast Viterra had 55 storage sites, and 6 bulk grain export terminals in both the south and west.
Long-term Upsides
In the long-run, both Bunge and Viterra believe that the greatest upside will be the diversification of their networks and supply links from external shocks due to their “highly complementary asset footprints”. External shocks include climate change which has increased droughts by 29% (2000-2019), conflicts such as Ukraine which shocked the global commodities supply, and increasing protectionist policies.
Therefore, the combination of both parties' geographic networks and diversification of its crop supply will allow it to meet the demand of “increasingly complex markets” for both farmers and consumers who will benefit from an expanded global supply options. Bunge and Viterra will be more responsive to supply and demand changes, which ultimately strengthens the company’s business model in difficult times.
On a separate note, with a greater reach, it will allow Bunge and Viterra's ambitions to promote sustainable practices in the global food supply, such as; complete traceability of major crops and their origins, and use of regenerative agriculture to decrease greenhouse gas emissions.
Finally, the deal represents a step taken by Bunge to compete and even challenge its rival firms in the industry which include Cargill and Archer Daniels Midlands, an underlying trend in the industry. Both competitors have acquired 13 firms in the past 5 years. In the long-run, however, this may reduce the competition between firms which was voiced by the Consumer Federation of America states, who also highlighted that this contrasts with the Biden administration’s current push for a more competitive America.
Risks and Uncertainties
Bunge’s acquisition of Viterra appears to be financially responsible and does not seem to carry much risk if it is allowed to be completed. The largest uncertainty is whether or not Bunge and Viterra’s merger is approved by antitrust regulators in Brazil and Argentina. Additionally, the Russo-Ukrainian War threatens to destroy prominent Viterra plants. Russia has repeatedly attacked Ukrainian infrastructure responsible for producing agricultural products and has been tentative at best about allowing agricultural products to be exported through the Black Sea.
It is unclear what will happen if Bunge’s acquisition of Viterra is not approved by antitrust regulators in Brazil and Argentina. Brazil’s antitrust agency CADE is likely to approve the merger, even though Bunge and Viterra controlled over 20% of the nation’s export of corn and soybean in 2022 as there are competitors in the domestic market. There is more uncertainty in Argentina where Bunge was already working on a deal to rescue bankrupt oilseed processor Vicentin SAIC. If both deals go through, Bunge is expected to control more than 40% of Argentina’s capacity for oilseed processing. While allowing both acquisitions would give Bunge unrivaled power in Argentina’s large oilseed market, regulators may approve both deals to stabilize the economy.
“The combination of Bunge and Viterra significantly accelerates Bunge’s strategy, building on our fundamental purpose to connect farmers to consumers to deliver essential food, feed and fuel to the world. 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.” - Greg Heckman, Bunge’s Chief Executive Officer
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