Viterra, the crop trading business spun out of Glencore, has swooped to acquire a US rival in a deal that could pave the way for an initial public offering of the business as the industry records bumper profits.
It will pay $1.13bn plus working capital to buy Nebraska-based Gavilon’s grain business from Japanese trading house Marubeni, filling an important geographical gap in its operations, which are currently focused on Canada, Australia and South America.
The deal comes as Glencore and its new chief executive Gary Nagle weigh options for its near 50 per cent holding in Viterra. At its investor presentation in December, Nagle said Glencore was working “very closely” with its partners in Viterra to “unlock” value. Bankers reckon one way to do that is via an IPO, with Glencore selling down its stake.
“Viterra is now present in all major agricultural origination regions of the world,” said Nagle in a statement on Wednesday. “This will enable the company to take advantage of structural opportunities across global agricultural markets.”
Glencore purchased Viterra for $6.1bn almost a decade ago, as it looked to expand its agricultural trading division under previous CEO Ivan Glasenberg.
It then sold just over half of the business to Canada Pension Plan Investment Board and British Columbia Investment Management Corp in 2016 as part of an effort to reduce debt but also as a way of increasing its firepower for possible acquisitions.
In 2020 it became a standalone company and was rebranded as Viterra but a transformational deal had proved elusive until now.
Like its peers, Viterra, which buys and sells grains, oilseeds, cotton and sugar, has benefited from some of the best trading conditions for years on the back of surging Chinese demand, supply chain disruptions and poor weather.
Archer Daniels Midland, another top agricultural trader, reported forecast-beating results this week, while crop giant Cargill reported the biggest profit in its history in 2021.
In the six months to June, Viterra recorded net income of more than $400m, up from $192m a year earlier, on revenue of almost $20bn. Trading volumes jumped 14 per cent to almost 90m tonnes. With almost 18,000 employees and 13.5m tonnes of crushing capacity it is one of the biggest agricultural merchants in the world.
“The addition of Gavilon supports our long-term strategy of significantly increasing our presence in the United States,” said Viterra CEO David Mattiske.
The sale of Gavilon’s grain business sharply reduces Marubeni’s footprint in US agricultural trading.
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It bought Gavilon for $2.6bn in 2013 but was forced to write down its value several times and posted a record net loss of just under ￥200bn for Marubeni’s entire business in the year to March 2020 amid weak commodity prices. Its agribusiness lost ￥100bn largely attributable to impairments and performance at the US grain unit.
Marubeni said it expected to recover ￥300bn to ￥400bn ($2.6bn —$3.5bn) including loans from its sale. Gavilon’s fertiliser business, which is not being sold, will be transferred to the Japanese group’s US division.
Viterra is funding the purchase price and a portion of the assumed working capital via a new credit facility, with the rest coming from financing facilities and cash on hand. As of December 31, Viterra had $3.6bn of untapped credit lines.
“With this deal, Viterra will immediately gain significant scale in the very large US grain and soybean market, thanks to a large storage and logistical network, and improve its geographic sourcing and asset footprint, “ said Maxime Puget, credit analyst at S&P Global Platts.
However due to the size of Gavilon’s operations and because Viterra had no significant operations in the US there were “integration risks” she said.
“That said, the group has a large presence in neighboring Canada and a track record of integrating its acquisitions well.”
This story has been amended to clarify the impact of the sale of Gavilon’s grain business on Marubeni’s US agricultural trading operations.