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LONDON/WINNIPEG, Manitoba (Reuters) - Glencore (GLEN.L) would carve up Viterra VT.TO into three pieces if it wins a bidding war for Canada's largest grain handler, an industry source said on Friday, describing the Swiss trader's plan for navigating the government scrutiny that a foreign takeover would face.
The source told Reuters the commodity trading giant wanted to buy all of Viterra and then sell its retail business to Agrium, a Canadian fertilizer producer.
Richardson International, a closely held Canadian grain trader, would take Viterra's food processing unit in a rare and complex deal known as "back-to-back" transaction.
Earlier reports said Glencore, also bidding for mining group Xstrata XTA.L, was planning a joint offer with Agrium and Richardson, something that might help the Swiss-based trader get round Canadian concerns about a sale to a foreign entity.
As the second-largest Canadian grain handler, Richardson would likely also be interested in some grain elevator and port assets.
Viterra, based in Regina, Saskatchewan, said Thursday it had established a process for potential buyers, and its stock rose 10 percent.
Viterra stands to profit from a government decision to end the Canadian Wheat Board's monopoly on Western Canadian wheat and barley sale. A successful bidder would win access to Canada's high-quality canola, spring wheat, oats and durum wheat supplies. Canada, the world's No. 8 grains producer, is the leading exporter of each crop.
The company's shares ticked up 0.6 percent on Friday to C$16.18, while Glencore stock gained 1.5 percent to 420.36 pence.
Shares have hovered around $16 since Thursday, when Viterra said it was aware of media reports of interest at that price. That would value it at some C$5.9 billion ($5.95 billion).
Sensitivity to anti-trust issues will be key to how Glencore, Richardson and Agrium - or other suitors - propose to break down the assets, said a second source familiar with the matter. The source, who is not authorized to speak on the record, asked not to be named in this story.
"Whoever's going to be involved in this will be aware of issues with the Competition Bureau," the source said. "Everybody is aware how the bureau views these things."
The bureau was a key player in the last big farm company takeover in Canada, when Saskatchewan Wheat Pool absorbed Agricore United and became Viterra in 2007.
To satisfy the bureau, the Wheat Pool sold some elevators and port assets to No. 3 player Cargill. It also divested some grain elevators and farm retail stores to Richardson, which had also bid for Agricore.
A joint bid by Glencore, Richardson and Agrium would likely be palatable to the bureau as long as Richardson doesn't get too many elevator and port assets, said agriculture analyst Chuck Penner of LeftField Commodity Research in Winnipeg.
Agrium is already the biggest U.S. farm retailer and Penner said its leap to the same position in Canada by purchasing Viterra's stores might be less of a competition concern because farm retailing has a lower cost of entry than grain handling.
Viterra is currently the biggest Canadian farm retailer, with about 260 stores selling seed, chemicals and fertilizer.
A foreign takeover of Viterra would be subject to a separate federal review to determine whether it is of "net benefit" to Canada. The government vetoed a takeover of Potash Corp (POT.TO) by Anglo-Austalian mining giant BHP Billiton (BLT.L) in 2010, damaging the country's image as a free market supporter.
Ottawa may be less likely to block a foreign bid for Viterra, however, because its home province of Saskatchewan has already said it doesn't see the company as a strategic resource and does not collect royalty revenues from it, unlike Potash.
On Friday, Saskatchewan Premier Brad Wall said head office jobs will be an important consideration as his government weighs whether to endorse any takeover bid.
"An enhanced head office presence and more jobs in Saskatchewan would be a benefit to our province," Wall said in a statement. "A diminished head office presence would obviously have the opposite effect."
Saskatchewan cannot block a takeover by itself, but it played an influential role in persuading Ottawa to halt the Potash takeover. Wall said Saskatchewan will also consider a takeover's impact on the provincial economy, government revenues and farmers.
Adding names of Canadian farm champions like Agrium and Richardson - a family owned company in business for 155 years - would likely make Ottawa more supportive of a foreign bid, since it would make two Canadian companies stronger.
Glencore and Richardson declined to comment, while spokespersons for Viterra and Agrium could not be reached.
Editing by Chris Wickham and Janet Guttsman