Bunge, a U.S. grains trader, and Viterra, a Glencore-backed company, announced their merger on Tuesday. The combined company will be in the agricultural trading business and will be worth roughly $34 billion, including debt.

With Bunge and Viterra valued at roughly $17 billion apiece, the merger puts the combined business on par with its two main competitors, Archer-Daniels-Midland and Cargill, in terms of worldwide scale. However, because Bunge will fund a sizeable portion of the transaction with cash, Bunge stockholders will retain approximately 70% of the company.

The size of the purchase is unprecedented in the world’s agriculture industry. It comes after Bunge reported record adjusted profits in 2022, taking advantage of the limited grain supplies around the world brought on by the conflict in Ukraine.

Shares of Bunge increased by almost 2%.

Under the terms of the agreement, Viterra stockholders will get approximately $2 billion in cash as well as 65.6 million shares of Bunge stock, valued at approximately $6.2 billion.

Viterra’s $9.8 billion in debt will also be taken on by Bunge, it was announced in a joint statement.

After the merger, which is anticipated to occur in mid-2024, stockholders of Viterra will own 30% of the combined business.

“The companies are highly complementary,” Chief Executive Greg Heckman said in an interview. “The way the assets and teams fit together, the strategic merit is one that we’ve looked at for years … Things just finally aligned.”

Analysts claim that Bunge, the largest processor of oilseeds in the world, and Viterra’s crushing operations may come under regulatory scrutiny in Canada, Argentina, and other countries.

According to a statement from a regulator spokeswoman, Canada’s antitrust authority will examine the proposed combination. According to a government source, the merger has not yet been officially announced to Argentina’s competition agency.

Requests for response from the American Department of Justice and the European Union’s antitrust authorities went unanswered.

According to information from shipping firm Cargonave, Bunge was the biggest exporter of maize and soybeans from Brazil in the previous year. Brazil is the world’s top producer of these staple crops for generating animal feed and biofuels. Viterra was the third-largest exporter of maize and the No. 7 shipper of soybeans.

Viterra expanded its grain buying and selling operations in the US last year by acquiring Gavilon. With a lesser presence than ADM and Cargill, Bunge would benefit from the combination in the world’s No. 2 exporter of maize and soy in terms of grain exports and oilseed processing.

The agreement also increases Bunge’s physical grain handling and storage capacity in Australia, a significant wheat exporter, where the business presently runs just two grain elevators and a port terminal in the country’s western region. In addition to six bulk grain export terminals, Viterra operates 55 storage facilities in western Victoria and South Australia.

If the merger occurs as expected, Fitch Ratings said its BBB rating for Bunge might be upgraded to BBB+.

The company’s sustained annual earnings of $4 billion are “a very reasonable target” after the merger, according to John Neppl, chief financial officer of Bunge.

The combined firm will be managed by Bunge’s management team, which is overseen by CEO Greg Heckman, who assumed the position in 2019 while the company was a target for acquisition.

Heckman directed a portfolio assessment that convinced Bunge to cut costs or get rid of unprofitable ventures like the milling of wheat in Mexico and South American sugar in favour of expanding its core edible oil business. Following a streak of quarterly losses in 2018, the company posted record earnings the following year. From 2008 to 2015, Heckman was in charge of Gavilon.

At a time when the Biden administration is actively striving to foster competition in the economy, the Consumer Federation of America said that the agreement would lessen competition for farmers’ crops and consolidate the processing of oilseeds used to manufacture plant-based foods as well as biofuel.

“Further concentration seems likely to harm consumers and the businesses, like plant-based food manufacturers, that rely on these commodities,” said Thomas Gremillion, director of food policy for the Federation.

In order to increase the accretion from the transaction to adjusted profit, Bunge stated it will repurchase $2 billion of its stock. Sumitomo Mitsui Banking Corporation (SMBC) has committed $7 billion in funding to the deal.

All Viterra shareholders are in favour of the merger, according to the announcement that the Canada Pension Plan Investment Board (CPPIB) and British Columbia Investment Management Corp. have made regarding their support of it. According to CPPIB, it will hold 12% of the combined business.

A united Bunge-Viterra would include three oilseed processing facilities spanning the country’s south and east, in Kharkiv, Dnipro, and Mykolaiv, the top producer and supplier of sunflower oil in the world.

By acquiring Viterra, Bunge’s revenue, which was $67.2 billion in 2022, would be more in line with ADM’s, which had sales of about $102 billion the previous year.

Within three years, the combination is anticipated to produce operational efficiencies worth $250 million gross pre-tax annually.

(Adapted from Investopedia.com)