Bunge Ltd, a U.S. grains trader, revealed on Tuesday that it was not holding merger talks with Glencore, a commodities and mining conglomerate based in Switzerland. This follows a disclosure by Glencore that it had informally approached Bunge to discuss the possibilities of a merger. Earlier The Wall Street Journal had reported that Glencore had initiated a takeover approach. The two companies have previously held talks but these concentrated on forming a partnership.
The report of Glencore’s interest in merging with Bunge led to speculation that the large grain trading houses in the world were open to consolidating following poor results in the recent past. This is akin to what has happened to the seed and farm chemical industries. In recent years big grain traders have faced challenges owing to an oversupply in the market. Besides Bunge, some of the big grain traders include Louis Dreyfus Co, Cargill Inc and Archer Daniels Midlands Co.
The situation is not likely to get any better as there has been a bumper harvest of both soybean and grain in both South America and the United States which rules out a supply disruption that would be a boon for global grain traders.
The large grain traders have also had to suffer from thin trading margins which have ended up squeezing their trading operations. There has also been stiff competition from Chinese and Japanese companies include COFCO Corp from China and Marubeni Corp from Japan.
Earlier in the month the chief executive officer of Bunger Soren Schroder was quoted as saying that the grain sector was ready for consolidation. He also added that his company would take the frontline in dealmaking but did not say explicitly whether Bunge would position itself as a seller or as a buyer.
In the event that Bunge and Glencore were to partner, Glencore would be transformed into a major agricultural firm in the United States. In the recent past Glencore has pursued a deal with the grains business unit of Louis Dreyfus without much success.
In 2012 Glencore bolstered its operations in Canada by entering into a $6 billion deal with Viterra Inc, a grain handler. Three years later Glencore’s grains business was spun off. Glencore was to later divest 49% of its holdings in Glencore Agri for over $3.1 billion. The stake was sold to British Columbia Investment Management Coro and Canada Pension Plan Investment Board.