Bunge/Viterra: exercise leaves grain dealer in form to bulk up

Bunge has labored arduous to get its stability sheet in form. Beneath Greg Heckman, who took over as chief government in 2019, the US grains dealer has reduce debt, shed underperforming belongings and improved earnings and returns.

Now it is able to flaunt its seaside physique. It’s shopping for rival Viterra for $18bn, together with debt. The money and shares deal will rework it into one of many world’s largest agricultural commodities buying and selling homes. The mixed revenues of the pair, which totalled $140bn in 2022, would put it in the identical league as trade leaders Cargill and Archer Daniels Midland.

The strategic logic of shopping for Viterra is tough to fault. Belongings are complementary. Bunge is the world’s largest oilseed processor. Viterra is a giant grain purchaser and exporter. Becoming a member of forces brings vertical integration and loads of value financial savings. Each teams are benefiting from the increase in renewable diesel and conflict-induced jumps in costs for oilseeds and grains.

Bunge’s even handed provide values Viterra at 8.6 instances enterprise worth to ebitda. That compares with 6 instances for Bunge itself however decrease than ADM’s a number of of 10 instances.

A 140 per cent share worth rise over three years has given Bunge a useful takeover foreign money. Viterra’s house owners — Glencore, Canada Pension Plan Funding Board (CPPIB) and British Columbia Funding Administration — will obtain about 65.6mn shares of Bunge inventory, valued at roughly $6.2bn and about $2bn in money. The latter can be coated by the $250mn in value financial savings forecast three years post-closing.

Bunge’s monetary self-discipline means it ought to be capable of assume Viterra’s $9.8bn debt with little pressure. The debt to ebitda ratio is anticipated to remain beneath 2 instances. S&P has raised its ranking on Bunge.

Regulators might but cease Bunge from displaying off a ripped new physique. May this deal cut back competitors to purchase farmers’ crops? Anticipate antitrust scrutiny from governments within the US, Brazil, Argentina and even China. Bunge might but find yourself having to place its shirt again on.