ABCD jostling places Canada’s investors atop global ag

Glencore Agri chief executive Chris Mahoney was echoing others before him when, in 2017, he described the Switzerland-headquartered firm’s collection of production, storage and transportation assets as having already fulfilled its ambitions of adding a “G” to the vaulted ABCD group of incumbents at the heart of global ag trade.

Glencore did add key assets and undertake a rebranding to ‘Viterra’ following its sale of a 50 percent stake to the Canada Public Pension Plan Investment Board and British Colombia Investment Management in 2016. But their collaboration, which ended last month with the $8.2 billion merger of Viterra and Bunge, was defined mostly by the pursuit of a larger deal.

Reports of contact regarding a potential merger between Bunge and Glencore Agri surfaced in 2017, soon after the CPPIB/BCI investment. That Louis Dreyfus Company chief executive Gonzalo Ramirez Martiarena was reportedly fired in 2019 after engaging in business combination discussions with Glencore, further suggests a merger at the strategic heights of the industry was always in Glencore’s sights.

The $8.2 billion merger with Bunge marks both the end of Glencore’s attempt to create a rival to agriculture’s established giants, and is another triumph of the logic that has driven consolidation across markets over the past decade.

The deal also brings Canadian pensions alongside other state-owned investment vehicles into the capital group behind the quartet of companies accounting for the bulk of global ag trade, albeit in a less direct form as shareholder in New York Stock Exchange-listed Bunge, which affords less influence than if a Canadian-backed Glencore had succeeded in creating a true global rival.

CPPIB, BCI, Bunge and Glencore all declined to comment or did not return messages seeking further detail.

The merger is expected to close in mid-2024, after which a fuller picture of the significance of the Bunge-Viterra combination and any asset sales compelled by competitors or regulators will emerge. In the meantime, a reexamination of the conditions surrounding the Canadian pensions’ 2016 investment into Glencore Agri is instructive.

It was a sharp drop in commodity prices during 2015 that added to pressure on Glencore Agri for a recapitalization that included sale of stakes in its agricultural unit.

“Glencore was dialing for dollars, they needed to raise money and decided to use their ag division as the way to do that,” a source familiar with global agribusiness markets told Agri Investor.

“I don’t think they looked to CPPIB as being a great strategic partner for agribusiness, right? It was just a big check, finding a big check-writer quickly that can step in and help them out. Obviously, CPPIB is quite smart about these markets and about the sector, so they were probably a pretty good choice as a shareholder. Someone that’s patient, with a long-term view that can be a good partner and stick with the deal, like they have.”

Given the need for scale in agriculture and the growing footprint of institutional investors  in the sector, Glencore’s motivations are clear. The more interesting set of questions may surround why a deal that could not be completed during the closing years of last decade made sense now for Bunge. Agri Investor‘s source suggests the turmoil of the past few years has underlined the profitability of providing essential resources and the tremendous scale of capital needed to do so.

“It’s more about competition and being able to compete with ADM and Cargill,” the source surmised.

CPPIB’s reputation for savvy makes it tempting to interpret Viterra’s merger as the inevitable outcome of a shift towards agribusiness, which followed its decision to dismantle farmland investments in its native Canada after public pushback.

Early reaction suggests opportunism and flexibility played as big a role as deliberate strategy in helping two of Canada’s largest institutional LPs secure their place at the top of global food and fiber trade.