Coverage: ADM seeks to purchase ag trader Bunge

Archer-Daniels-Midland Co. sought merger talks with Bunge Ltd., potentially setting up a battle for control of the giant agricultural trader with Glencore Plc.

Javier Blas and Simon Casey of Bloomberg News had the story:

ADM’s recent approach was preliminary and it’s unclear whether a deal can be done, said the person, who asked not to be identified because the talks are private. Glencore, the world’s largest commodities trader, approached Bunge last year over a merger, but was rebuffed and signed a standstill agreement that prevents it making a hostile bid for the time being.

Bunge is the B in the so-called ABCD companies that dominate global agricultural trade, alongside ADM, Cargill Inc. and Louis Dreyfus Co. After several years of bumper crops, trading profits have fallen, prompting industry executives to talk of consolidation.

ADM and Glencore declined to comment. Bunge did not respond to messages seeking comment.

Tom Polansek and Rod Nickel of Reuters reported that the deal would help ADM grow in South Africa:

In 2014, ADM bought natural ingredient company Wild Flavors for about $3 billion in its biggest deal ever. The company has also expanded into handling healthy ingredients such as fruits, nuts and “ancient grains.”

“News of the ADM bid is a bit surprising given that ADM had been indicating the company’s strategic direction was more towards value-added rather the traditional commodities,” said Stephens Inc analyst Farha Aslam.

ADM is the most U.S.-focused of the major grain companies and a takeover would help it grow in South America, where Bunge is a major agricultural force.

ADM, which dates back to 1902, has tried to expand its international operations, in part to take advantage of growing demand from China. In 2013, Australia rejected its attempted $2.55 billion takeover of Sydney-based grain handler GrainCorp Ltd on concerns it could reduce competition.

Gregory Meyer, James Fontanella-Khan and Neil Hume of The Financial Times reported that Bunge’s CEO is open to a deal that creates shareholder value:

In the summer Bunge chief executive Soren Schroder left a door open to a possible transaction, saying that the suburban New York-based company would seriously evaluate any offer that would generate shareholder value. However, he has emphasised partnerships and joint ventures as a means of consolidating an industry suffering from too much capacity.

A combination of Bunge and ADM would face serious pressure from antitrust authorities to divest assets especially in the US and Canada, an industry executive said. This could offer an opportunity for Glencore or another company to acquire those assets without engaging in a bidding war for the whole of Bunge.

It is unclear whether Glencore would renew its interest in a deal after the standstill agreement ends as the commodities group is concerned about a recent decline in profitability at Bunge, said people familiar with its thinking.