May 11, 2012 / 6:03 PM / 5 years ago

Saskatchewan seeks conditions on Glencore's Viterra bid

The logo of Glencore is seen in front of the company's headquarters in the Swiss town of Zug May 9, 2012. REUTERS/Arnd Wiegmann

WINNIPEG, Manitoba (Reuters) - The Western Canadian province of Saskatchewan said on Friday it wants Ottawa to impose conditions on Swiss-based Glencore’s C$6.1 billion ($6.1 billion) takeover bid for the country’s top grain handler, Viterra Inc, which is headquartered in Saskatchewan.

The federal Conservative government must decide whether the foreign takeover is of net benefit to the country. The independent Competition Bureau is also examining Glencore International Plc’s plans to sell parts of Viterra to Agrium Inc and Richardson International Ltd.

The deal would make Glencore, already the world’s biggest diversified commodities trader, a major player in grains alongside Cargill Inc, Archer Daniels Midland Co, Bunge Ltd and Louis Dreyfus Corp.

Saskatchewan released a report on Friday that it commissioned from Informa Economics, which highlights both the positive and negative implications of the takeover for the province. As a result, Saskatchewan said it will ask Ottawa to impose conditions on Glencore if it decides to approve the deal.

One concern outlined in the report is Glencore’s plan to sell most of Viterra’s Canadian farm-supply outlets - which offer seed, chemicals and fertilizer to farmers - to Agrium, a major nitrogen producer.

“Glencore has a significant global network that will serve as a market for Saskatchewan farmers and a vehicle for increased economic growth in the province,” said Saskatchewan Agriculture Minister Bob Bjornerud. “At the same time, we need to ensure there is no adverse effect on competition in farm inputs.”

Saskatchewan also wants Ottawa to ensure Glencore keeps its promises to increase capital spending in Western Canada by C$100 million over five years and to make the provincial capital of Regina the base of its North American agriculture business.

Glencore’s C$6.1 billion offer for Viterra, which has most of its grain-handling, processing and farm supply operations in Western Canada, and some in South Australia, is the biggest agriculture sector deal in years.

In 2010, Saskatchewan’s opposition to a proposed takeover of Potash Corp by BHP Billiton was key to Ottawa blocking that deal.

“A number of provinces have been consulted on this proposed investment, including Saskatchewan,” said Canadian Industry Minister Christian Paradis. “In making a determination, the plans, undertakings and other information submitted by the investor are all carefully considered.”

Some critics argue that Ottawa currently has little recourse under its Investment Canada law if foreign acquirers fail to live up to their promises.

Canada was forced to wade into a legal battle with U.S. Steel Corp to win the right to fine the steelmaker for breaking job-protection promises made when it bought Canadian steelmaker Stelco. The two parties settled the matter last December.

Canada is the biggest exporter of canola, spring wheat and oats. The end of the Canadian Wheat Board’s monopoly over Western Canada’s wheat and barley sales is expected to boost profits for grain handlers, who will be able to buy directly from farmers as of August 1.

The Informa report highlighted Glencore’s global marketing reach as a benefit to Canadian farmers and said the deal poses little problem for competition in grain handling, while flagging a concern about Agrium’s bigger clout.

“Glencore continues to work within the Investment Canada review process and to pursue regulatory approvals required to complete the transaction, which we believe will be of significant benefit to Canadian farmers and the grains and oilseeds sector generally,” Glencore said in a statement.

If the takeover and its side deals go through, the report noted that the fertilizer sector will become more vertically integrated, as Agrium adds 232 of Viterra’s farm outlets to its own nitrogen-production capacity, which amounts to more than 50 percent of the country’s total.

An Agrium official said under the deal, vertical integration - or concentration of parts of a single industry - would decrease, because Viterra is currently the biggest player in both farm inputs and grain handling.

“I find it strange they’re saying vertical integration will go up when in fact it will go down,” said Agrium spokesman Richard Downey.

The report on changes to the grain-handling landscape “supports what we’ve been saying since the time of the transaction - it is a good news story,” said Jean-Marc Ruest, Richardson’s vice-president of corporate affairs. “It will be beneficial from a competition standpoint.”

The report underlines that Saskatchewan will have an important place within Glencore, said Viterra spokeswoman Holly Gibney.

Saskatchewan is also asking Ottawa to ensure that job levels at country elevators do not drop, under Glencore. The Informa report said the province may initially lose head office jobs as Viterra gets carved up, but may recoup them as Glencore expands.

Viterra’s shareholders will vote on Glencore’s C$16.25 a share offer on May 29 in Calgary, Alberta.

Canada’s independent Competition Bureau has already said it will not oppose the takeover, but has not ruled on Glencore’s side deals with Agrium and Richardson.

($1=$1.00 Canadian)

Reporting by Rod Nickel in Winnipeg; editing by Carol Bishopric and Andre Grenon

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