Report: Glencore, Bunge agree to standstill deal

by Eric Schroeder
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Glencore Bunge
 
WASHINGTON, D.C., U.S. — Glencore plc has reached a standstill agreement that, at least in the short term, prevents it from making a hostile bid for Bunge Ltd., according to an article in the Wall Street Journal. Citing sources familiar with the situation, the WSJ indicated that the news raises the possibility that Glencore is planning to renew its effort to acquire Bunge.

Glencore, a Barr, Switzerland-based miner and commodities trader, made a takeover approach for White Plains, New York, U.S.-based Bunge in mid-May. At that time, Glencore called it an “informal approach,” and said that “discussion may or may not materialize and there is no certainty that any transaction will occur.”

Bunge, meanwhile, said that it was “not engaged in business combination discussions with Glencore Agriculture Limited or Glencore plc.” The company added that it was “committed to continuing to execute its global agri-foods strategy and pursuing opportunities for driving growth and value creation.”

In an Oct. 13 research report, Robert Moskow, a research analyst with Credit Suisse, said the standstill agreement indicates an interest by both Glencore and Bunge to partner with each other in a joint venture in the short term. Longer term, it appears Glencore is interested in buying Bunge, Moskow said.

Robert Moskow
Robert Moskow, a research analyst with Credit Suisse

“This agreement would appear to give Glencore access to otherwise confidential information but prevent it from making a bid until next year,” Moskow wrote in the report. “We would not be surprised if such an arrangement and delaying any deal until 2018 would buy Glencore more time to reap additional FCF from current high copper, coal and zinc prices, boosting its ability to put forward a more attractive offer to Bunge given Glencore is finalizing (approximately) $1.5 billion of recently agreed acquisitions.”

Moskow added that Bunge’s recent acquisition of Loders Croklaan combined with capital expenditure cuts and $250 million in cost savings initiatives have been undertaken to maximize shareholder value rather than deter Glencore from a potential takeover.

“Glencore management has clearly telegraphed its intentions to expand in the agribusiness space through acquisitions, and Bunge’s global footprint and value-added capabilities make it a logical partner,” Moskow said. “We re-iterate our outperform rating with a $90 target price and an EPS estimate of $3 for FY17.”

According to the WSJ, the standstill expires early next year. In the meantime, it prevents Glencore from buying stock in Bunge or from making any public, unsolicited offers. 
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