The
New York Times DealBook column is always a great source of nuanced detail
about mega mergers. Their view
is that Glencore's interest in Viterra is all about grain, specifically
wheat. Glencore will add Viterra's
grain assets in Canada and Australia as growth in Asia boosts demand. This purchase comes in anticipation of the
deregulation of the Canadian wheat market, one of the most important export
markets for the grain. The Canadian Wheat Board ($5.1bn sales in 2010), has
enjoyed a monopoly to market wheat and barley from the prairie provinces of
western Canada for decades. Starting
from 1 August 2012, Canadian farmers will be able to sell to entities other
than the wheat board. Viterra owns more
than half of the grain export capacity in Canada as well as very significant
grain export capacity in South Australia.
An
important step in the deal is that Glencore has agreed to spin of what they
feel are non-essential assets to Agrium Inc. ($1.8 billion) and Richardson
International Ltd ($800 million). Agrium
is a retail supplier and a global wholesale producer and marketer of
fertilizers in North America, South America, and Australia. They would acquire approximately 90 percent
of Viterra's Canadian Ag-retail facilities, all of their Australian Ag-retail
facilities, as well as their minority position in a nitrogen facility located
in Medicine Hat, Alberta.
Richardson
International Ltd is a worldwide handler and merchandiser of all major Canadian
grown grains and oilseeds, and a global player in agriculture and food
processing. They will acquire Viterra
assets that include grain handling, crop input and processing facilities and
related working capital.
The
deal will be reviewed by Investment Canada, and the Competition Bureau. Teaming up with Canadian partners has
"largely mitigated" the investment risk, BMO Capital Markets said. Prime Minister Harper seems to agree,
welcoming the efforts by Glencore to keep assets in "Canadian hands".
Finally
there is a strong possibility that there is a sequel to this deal waiting in
the wings. U.S. based grain (and
Fertilizer) trader Gavilon Group LLC has been on
the market since January. Stay tuned...