March 12, 2012 / 12:12 PM / 6 years ago

Glencore among suitors for Canada's Viterra: source

Swiss commodities trader Glencore's logo is seen in front of its headquarters in Baar, near Zurich, February 6, 2012. REUTERS/Romina Amato

ZURICH/WINNIPEG, Manitoba (Reuters) - Glencore (GLEN.L) is one of a handful of parties eyeing a potential bid for Viterra VT.TO, Canada’s largest grain handler, as the diversified trading house looks to boost its agricultural presence, a Swiss-based industry source said on Monday.

Viterra, with a current market value of around $5 billion, said on Friday it had received expressions of interest from unnamed third parties for a possible takeover, sending its shares up more than 20 percent.

Shares of the Regina, Saskatchewan-based company gained a further 4 percent Monday morning in Toronto, taking the stock to a 3-1/2 year high, before paring gains.

Taking control of Viterra would give Swiss-based Glencore access to Canada’s prized canola, spring wheat, oats and durum wheat supplies. The country, the world’s leading exporter of each crop, is due to end a grain marketing monopoly in August that could give a big lift to Viterra’s business.

But a non-Canadian bid for Viterra, which also owns almost all the grain terminal space at ports in South Australia, could face regulatory hurdles in Ottawa, with its reputation for resource nationalism. That could discourage prospective suitors.

Glencore, which is also pursuing a 23 billion pound ($36 billion) takeover of miner Xstrata XTA.L, already markets and produces crops alongside metals, minerals and oil.

The trading house - the world’s largest diversified commodities trader - has long said it planned to expand in agricultural commodities.

It held unsuccessful talks last year with Louis Dreyfus, a leading player in the farm sector. It was also named earlier this month as one of several suitors circling Gavilon Group, a U.S. energy and grains trader.

“Glencore clearly want to fill that hole in their portfolio. When things didn’t seem to be going well with Dreyfus, they had to look around,” the source said.

The source, who was not authorized to speak on the record, said other suitors could include trader Cargill, already Canada’s third-largest grain handler. Viterra, Glencore and Cargill declined to comment.

Industry sources pointed out that the interest in Viterra comes with the Canadian Wheat Board’s 69-year-old marketing monopoly over wheat and barley set to end in August.

A law passed by the Canadian government last year would allow Viterra and others to buy grain directly from western farmers for the first time in decades and potentially fatten earnings.

GOVERNMENT REVIEW

Still, a non-Canadian bid for Viterra, which has its roots as the farmer co-operative Saskatchewan Wheat Pool, may trigger political opposition.

In Canada, any foreign takeover of a domestic company with an asset value of C$330 million ($333.72 million) or more is subject to a government review to determine whether it is of “net benefit” to the country.

Because of Viterra’s size, a takeover - whether by a Canadian or foreign concern - would also face a review by the Federal Competition Bureau, although monopoly concerns would likely be more acute if a domestic player like Cargill or Richardson International bid. Viterra owns nearly half of the grain-handling capacity in Western Canada.

Louis Dreyfus has said it is expanding its grain handling capacity in Canada, last year downplayed talk of acquisitions. It declined to comment on Viterra.

U.S. agribusinesses Archer Daniels Midland (ADM.N) and Bunge (BG.N) could also make offers, although any non-Canadian suitor must take into account Ottawa’s 2010 decision to block a bid by Anglo-Australian miner BHP Billiton for Potash Corp, the world’s largest fertilizer maker, said Robert Winslow, an analyst at National Bank Financial, in a note to clients.

Because of that high-profile rebuff, foreign suitors for Viterra will likely involve Ottawa in their plans early, Winslow said.

“We argue there is risk of the federal government complicating any potential deal,” Winslow said.

BMO analyst Joel Jackson said Canada’s Agrium Inc (AGU.TO), the largest North American agricultural products retailer, may emerge as a potential suitor for Viterra. Viterra’s farm-supply assets might make a neat addition to Agrium’s own retail network, he said.

Agrium has a large retail footprint in the United States, but a fairly small presence in the farm belt in western Canada where Viterra owns more than 250 stores. The two companies both have retail outlets in Australia.

Jackson said he would expect Agrium to bid only for Viterra’s agri-products business or sell off the grain handling side if it acquired the entire company.

Agrium and Bunge were not immediately available for comment, while ADM has said it would not comment.

EYE ON NORTH AMERICA

Glencore is one of the leading exporters of grain from Europe, the former Soviet Union and Australia. It commanded almost 9 percent of the global market for grains at the time of its initial public stock offer last May. It has looked to North America as an area for growth, particularly for agricultural infrastructure, such as country elevators to buy grain.

“Viterra would fit this infrastructure-heavy criteria and would give it a dominant entry point in North American agriculture, a market where it currently has negligible presence,” analysts at Liberum said in a morning note.

Glencore began trading agricultural commodities three decades ago with the acquisition of a Dutch trading company. Its farm products arm now deals in wheat, maize and barley to oilseeds, cotton and sugar.

Glencore shares were up 0.3 percent at 410.10 pence in London, while Viterra stock added 2.1 percent to C$13.87 in Toronto.

($1=0.6372 British pounds)

($1 = 0.9889 Canadian dollars)

Additional reporting by Clara Ferreira-Marques, Victoria Howley and Nigel Hunt in London, and Euan Rocha in Toronto; Editing by Frank McGurty

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