BAAR SWITZERLAND — Glencore Plc hired Citigroup Inc. and Credit Suisse Group AG to sell a minority stake in its agricultural business, a deal that could value the whole division at as much as $12 billion, Bloomberg reported on Sept. 25, quoting a person familiar with the situation
The Swiss-based company is in talks with about a dozen sovereign wealth funds and Asia-based trading houses, according to the same person, who asked not to be identified because the negotiations are private.
The sale is part of a debt-cutting program announced by Glencore’s chief executive officer, Ivan Glasenberg on Sept. 7. The plan included selling $2.5 billion of new stock, asset sales, spending cuts and suspending the dividend. Taken together, the measures aim to reduce the company’s debt from $30 billion to $20 billion.
On Aug. 13, Glencore reported a 46% decrease in agricultural profits for the first half of the year, and said it was a challenging time for commodities. The agriculture segment produced 4.5 million tonnes in the first half of 2015, compared with 4.8 million tonnes a year earlier. Crush volumes were in line with the prior period, but wheat milling was down 7% to 486 million tonnes. Rice milling production was down 28% to 91 million tonnes.
Switzerland-based Glencore is one of the world’s two biggest wheat traders, handling 18% of the world’s seaborne trade, and is one of the top three agricultural exporters in Russia, Canada, Australia, and the E.U.
Glencore is likely to sell the minority stake to a group of sovereign wealth funds and Asian trading houses, rather than to a single party, the same person said. A Glencore spokesman declined to comment.
The company estimates the agriculture unit is worth about eight to 11 times earnings before interest, tax, depreciation and amortization (EBITDA), the person said. Glencore’s agricultural business generated EBITDA of $1.21 billion last year and $332 million in the first half of 2015.
The company believes that a group of investors could provide its agricultural unit with the funding to grow further, something that Glencore would struggle to do alone after the price of key commodities such as coal and copper plunged.
Glencore became a major agriculture player when it bought Canadian grain handler Viterra Inc. for C$6.1 billion ($4.6 billion) in 2012. Nonetheless, it still has no presence in the most important grain market of all, the U.S.
The commodities industry has seen a flurry of deals in agriculture over the last three years as Middle Eastern and Asian buyers step into the market. The deals include Mitsubishi Corp. paying about $1 billion for a 20% stake in food trader Olam International Ltd.
In April, a Saudi state-owned company partnered with Bunge to buy a majority stake in the former Canadian Wheat Board. The C$250 million ($203 million) deal gave Riyadh access to grain exports from Canada.
Other deals in agriculture involving Asian and Middle East buyers include Marubeni Corp., one of Japan’s top-five trading houses, buying U.S. grain merchant Gavilon Holdings LLC in 2013 for $2.7 billion plus debt to expand in North America.
The agricultural trading industry has long dominated by U.S. and European houses, in particular a group known as "ABCD" for the initials of Archer Daniels Midland Co., Bunge Ltd., and Cargill Inc. and Louis Dreyfus Commodities.