Glencore: who? why? what now?

Lacking North American presence | The Swiss company produces and markets commodities such as minerals, metals, energy and agricultural products and hopes to expand its worldwide influence 

Canadian grain industry executives knew Viterra wouldn’t last long under the open market, but they didn’t foresee a takeover happening this fast or with this particular buyer.

“I have to be honest, I was a bit surprised it was Glencore. But good for them and I think it will make a fairly strong company,” said Adrian Measner, president of Soumat Inc. and former chief executive officer of the Canadian Wheat Board.

He thought the buyer would be a more familiar name such as Archer Daniels Midland or Bunge.

“Glencore had been more focused on marketing than on infrastructure but have decided there is value in having infrastructure, so they moved in a very big way,” said Measner.

Brian Hayward, president of Aldare Resources and former chief executive officer of United Grain Growers and Agricore United, said Glencore is a young firm that has grown rapidly. It hasn’t been very active in Canada.

“Generally in North America, they’ve not been highly visible,” he said.“There wasn’t too many people six months or a year ago saying this was a company that’s on the radar screen. The usual suspects were the likes of Bunge and ADM, et cetera.”

So who is Glencore?

The company was formed in 1974 as Marc Rich & Co AG. According to Wikipedia, Marc Rich is a billionaire commodity trader who was charged in the United States with tax evasion and illegal business dealings in Iran but pardoned by president Bill Clinton in 2001.

The company was renamed Glencore International in 1994 when management bought out Rich.

Glencore has its critics.

An Al Jazeera article about the company suggests Glencore uses its “immense market power” and questionable tactics to manipulate world grain prices.

There are allegations of illegal activity and shady mining deals with the likes of Iraq, Iran and South Africa’s apartheid government.

Leo de Bever, chief executive officer of Viterra’s largest shareholder, Alberta Investment Management Corporation (AIMCo), isn’t too shocked by the criticism.

“Does (Glencore) have enemies? Yes it does, like any mining company,” he said.

“Mining is not a pretty picture no matter how you do it, so there are people who are opposed to Glencore or Xstrata or any other company.”

His quick analysis of Glencore has found no major red flags.

“By all accounts, it seems to be a respectable company,” said de Bever.

“From what I’ve heard from them, their heart seems to be in the right place. Could they be snowing you? I don’t know, that’s always a possibility.”

The Swiss company has become the world’s largest commodity trader, posting revenues of $186 billion in 2011.

The firm hasn’t had much of a presence in the North American grain industry, which is the main reason Viterra was such an appealing target.

Glencore produces and markets commodities such as minerals, metals, energy and agricultural products.

De Bever questioned the company about that product mix when Glencore met with AIMCo to sell it on its proposed takeover of Viterra.

“I said, ‘you know, this is weird. You’ve got grain and you’ve got metals and minerals.’ They said the common denominator is they see themselves as a very good company in the way of logistics,” said de Bever.

“It is the efficient transfer of the resource that they pride themselves on.”

Glencore has a 60 percent share of the world zinc trade, 50 percent of the copper market and nine percent of the international grain trade.

Glencore’s agriculture division generated $17.1 billion of revenue in 2011, which represents nine percent of the firm’s total revenues that year.

The company is one of the leading grain exporters in Europe, Russia, Ukraine, Kazakhstan, Argentina and Australia. Its customers are primarily located in North Africa, the Middle East and Asia.

“Obviously, Viterra has a very different geographic footprint,” Chris Mahoney, director of agricultural products at Glencore, told reporters during a news conference.

“Everything we see is complimentary, not only in terms of geography but in terms of commodities and products as well.”

He confirmed Measner’s suspicion that the deal was about acquiring infrastructure.

“We viewed it as a very asset rich company. We did not and we do not view it as the acquisition of traders or a trading company,” said Mahoney.

The Viterra purchase will make Glencore a much bigger player in the agriculture industry by giving it a major North American presence and expanding its sphere of influence in Australia.

Viterra posted revenues of $11.8 billion in 2011, a portion of which was generated from assets that are going to Richardson International and Agrium Inc., Glencore’s Canadian partners in the friendly takeover of Canada’s largest grain handler.

In Canada, Glencore will be retaining 63 elevators and five export terminals. In Australia, it gains another 109 elevators and eight bulk export terminals.

The Viterra purchase is not the company’s first dealings with a Canadian grain company. Last July, Glencore invested $8.5 million for a 15 percent share in Legumex Walker Inc.’s Pacific Coast Canola, a canola crushing project in Warden, Washington.

Measner expects it is the first domino in what could be a series of grain industry transactions in Western Canada.

“This happened quicker than I expected. Everybody was talking a couple years down the road. It would take a year for people to sort of get the lay of the land and then we’d start to see some big changes. This caught everybody a bit off guard,” he said.

“This will create urgency on some additional moves, and those may happen sooner rather than later.”

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