Jesse Riseborough and Javier Blas London
WITH only one acquisition in the past 11 months, Glencore’s billionaire chief Ivan Glasenberg is in the midst of a deal-making drought.
As the industry awaits his next move, the focus has been on whether he will make another run for the world’s second-biggest miner Rio Tinto Group, which spurned an approach last year.
Underpinned by a stellar $800 million (R9.5 billion) increase in profits from the division last year, agriculture may offer a more tempting expansion opportunity for the company.
Glencore, one of the world’s largest traders of wheat, became a major agriculture player when it bought Canadian grain handler Viterra for C$6.1 billion (R58 billion) in 2012.
Nonetheless, it still has no presence in the most important grain market of all: the US.
Although no move is imminent, businesses including Scoular, Andersons and Lansing Trade Group may be targets, adding physical assets like grain silos and rail terminals, according to people familiar with the company’s thinking who asked not to be named for reasons of confidentiality.
“It may well make sense for the next deal to be in agriculture,” Michael Rawlinson, co-head of mining and metals investment banking at Barclays, said.
“That’s how it works at Glencore, bolster your contribution to profitability and you’ll be provided with greater resources for growth.”
Coal trader
Chief executive Glasenberg has largely built his $5 billion fortune by growing the commodity producer and trader through more than 40 deals since becoming chief executive in 2002.
Chief financial officer Steve Kalmin said in December that Glencore, or G, should be added to the crop industry’s ABCD, the informal acronym representing the biggest players in grain trading – Archer-Daniels-Midland, Bunge, Cargill and Louis Dreyfus Commodities.
“There are very few remaining assets in the US as most of the capacity has been bought by the ABCD and Japanese traders,” said Karel Valken, the global head of agri-finance at Rabobank, the largest lender to the farming industry.
Scoular is a more than century-old closely held grain trader based in Nebraska, while Andersons is a Nasdaq-listed company based in Ohio focusing on grains, ethanol and plant nutrients worth $1.1 billion. Lansing Trade is a Kansas grain merchant co-owned by Andersons, Australian bank Macquarie Group and its employees.
“Scoular is not seeking, and has no intention to entertain, proposals that would alter this independent ownership,” chief executive Charles Elsea said. “Opportunities for growth as an independent company offer the highest return to our shareholders, and that is the path we will continue to pursue.”
Andersons and Lansing Trade did not respond to requests for comment.
While buying one of the larger ABCD companies would fill the US gap, a deal of that scale is probably too ambitious. Other smaller, independent grain businesses in the US include two Kansas-based closely held companies, Bartlett and Seaboard.
“The US has to be part of the portfolio of a global grain trader,” said Philippe de Laperouse, the managing director of agribusiness consultant HighQuest Partners and a former senior executive at Bunge. “Eventually, you need the US corn, soybean and wheat.”
Other than Viterra, Glencore’s recent takeover record has been patchy, at best.
The $29 billion all-share acquisition of Xstrata, the world’s biggest exporter of power station coal, has been undermined by a collapse in the price of the fuel to the lowest in more than five years. Glencore last year decided to idle some of the coal mines bought in the 2013 deal.
Last year, it spent about $1.35 billion buying an oil exploration and production company Caracal Energy in Chad. Since then the price of oil has plummeted almost 60 percent.
Glencore made an approach to Rio Tinto’s chairman last year about a possible merger. After that was made public, Glencore had to forgo a fresh approach for six months. Even though that lock-up expires next month, a second run isn’t considered likely because Glencore’s share price has fallen relative to Rio, a larger company.
Chris Mahoney, a member of a British rowing crew that won silver in the 1980 Moscow Olympics, heads Glencore’s agriculture division and oversaw the takeover of Viterra.
The company is now one of the world’s two leading traders of wheat, handling about 18 percent of the global seaborne trade.
The company is among the top-three agricultural exporters in Russia, the European Union, Canada and Australia – all key countries in the global food market. On top of trading and processing grains, Glencore also farms 180 000 hectares of land in Eastern Europe, equivalent to about half the size of Rhode Island.
The late Marc Rich, who in 1974 created the company that later became Glencore, started the agriculture business in 1982 after buying Dutch grain trader Granaria Group.
Wheat production
The company reported adjusted earnings from its agricultural products business of $992 million last year, up from $192 million a year earlier. That was underpinned by a fourfold increase in its marketing division, thanks largely to record wheat harvest in Canada and Europe last year.
Glencore’s most recent deal was the purchase of a 50 percent stake in an agricultural export terminal in northern Brazil from Chicago-based Archer-Daniels-Midland.
In “agriculture, because it’s so geographical, very small and prone to seasonality, you do get these big arbitrage opportunities”, Ben Davis, a commodities analyst at Liberum Capital in London, said.
“I definitely imagine they are going to increasingly go that way.”
Peter Grauer, the chairman of Bloomberg LP, the parent of Bloomberg News, is a senior independent non-executive director of Glencore. – Bloomberg