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Glencore strikes $6.1B deal for Canada's Viterra

by Laura Board | Published March 20, 2012 at 12:12 PM

Commodities trading giant Glencore International plc announced Tuesday, March 20, a widely anticipated C$6.03 billion ($6.06 billion) consortium deal to buy Canadian grains company Viterra Inc.

Glencore, a Baar, Switzerland, company trying to complete a $100 billion-plus agreed merger with mining affiliate Xstrata plc, agreed to pay C$16.25 per Viterra share. The price is 48% more than the target's undisturbed price on March 8, just before Viterra revealed it was considering offers.

Glencore's partners in the deal are Canada's Agrium Inc. and Richardson International Ltd., which will pay a combined C$2.6 billion for most of Viterra's Canadian and certain other assets.

Glencore said the acquisition will expand its operations in the grain and oilseeds markets, particularly in Australia, and boost earnings from the first year.

"The acquisition of Viterra reflects our strong belief in the importance and future potential of the Canadian and Australian grain markets," Glencore Agricultural Products director Chris Mahoney said in a statement.

"This is an exciting opportunity to deliver the real benefits that can be generated through the combination of Glencore's and Viterra's respective assets, people and know-how to both farmers and customers in Canada, Australia and further afield."

Viterra CEO Mayo Schmidt said the transaction "creates value and opportunities for employees, our communities, farmers and customers."

The Glencore offer is not conditional on the side deals with Agrium and Richardson proceeding to plan. Under those deals, Agrium, of Calgary, Alberta, will acquire the majority of Viterra's retail agri-products business including its 34% interest in Canadian Fertilizer Ltd. for C$1.8 billion in cash, subject to certain adjustments. Richardson International, of Winnipeg, Manitoba, will acquire 23% of Viterra's Canadian grain handling assets, certain agri-center and certain processing assets in North America for about C$800 million.

Holders of 16.5% of Viterra shares, including senior management and No. 1 shareholder Alberta Investment Management Corp., have agreed to tender their stock.

Interest in Viterra comes ahead of the Aug. 1 removal of the Canadian Wheat Board's monopoly position as intermediary between Canadian farmers and traders. Viterra had predicted that the change could eventually boost the company's earnings by between C$40 million and C$50 million annually.

Glencore must overcome several regulatory hurdles, notably the Investment Canada Act, which requires federal government regulators to consider whether a takeover by a foreign entity would provide a net benefit to Canada. Brad Wall, prime minister of Viterra's home province of Saskatchewan, last week said that his office would evaluate a potential deal based on its impact on the local economy and farmers and whether Viterra remained based in Regina.

Glencore said Tuesday it "is committed to being a strong corporate citizen in Alberta, Manitoba, Saskatchewan and Canada overall," and will make Viterra's Regina its North American agricultural business' head office, from which it plans to expand into the U.S.

Saskatchewan in 2010 objected to a hostile $40 billion bid by BHP Billiton Ltd. for Potash Corp. of Saskatchewan Inc., a key factor in the national government's ultimate decision to block the proposed transaction.

Viterra shares by midmorning in Toronto were trading down C$0.02 at C$15.97. Agrium was up C$1.25 at C$86.99, giving it a market value of C$13.7 billion. Glencore shares slipped 9.35 pence, or 2.2%, in London to 411.1 pence by early afternoon. At that price the company's equity is worth £28.5 billion ($45.3 billion), including its 34% stake in Xstrata.

A nonsolicitation pact gives Glencore the right to match any competing offers for Viterra and would give the Swiss company a C$185 million breakup fee if Viterra's board withdraws its recommendation.

The deal is expected to close by the end of July. If it doesn't close for regulatory reasons, Viterra would get C$50 million.

Viterra investors will vote on the transaction in May, with two-thirds of the votes cast needed for the deal to proceed.

Glencore's financial advisers are Bank of America Merrill Lynch and RBC Capital Markets; its law firms are a Bennett Jones LLP team in Canada including Ken Klassen, Adam Taylor. Eden Oliver, Jason MacIntosh and Randal Hughes, Linklaters LLP in Europe and Asia, King & Wood Mallesons in Australia and Curtis, Mallet-Prevost, Colt & Mosle LLP in the U.S.

Viterra is taking financial advice from Canaccord Genuity and legal counsel from Torys LLP, Ashurst in Australia and Sidley Austin LLP in Europe. The Sidley Austin team advised on competition matters and included Brian Fahrney, Tim Cowen, Angelene Duke and Rosanna Connolly. Viterra's board of directors' financial adviser is TD Securities Inc. and its legal adviser is Fasken Martineau DuMoulin LLP. n

-- Lou Whiteman contributed to this report.

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