A stock analyst who follows Viterra believes there’s an 80 percent chance a takeover will occur.
And the rumoured friendly offer by a consortium of Glencore International PLC, Richardson International Ltd. and Agrium Inc. would be tough to beat, said Christine Healy of Scotia Capital Inc.
“We believe such a deal could be financed and would gain the required regulatory approvals,” she said in a recent note to investors.
“We believe it would be difficult for a standalone bidder to compete with this consortium.”
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There have been conflicting media reports about how Viterra’s assets would be divided among consortium members.
One suggests Glencore would get the grain handling and port assets, Richardson would receive the food processing portion of the business and Agrium the crop input stores. Other reports say Richardson would get some grain handling assets as well.
“If Richardson is involved, we believe they are likely to purchase certain Canadian grain assets in order to make it worth their while,” said Healy.
Viterra announced March 19 it was in exclusive talks with one prospective buyer, but analysts say that doesn’t preclude others from conducting a hostile takeover.
Scotia Capital has long believed Archer Daniels Midland is a “logical acquirer” of Viterra, but ADM is determined to maintain its “A” credit rating, which means the deal would need to be financed by debt rather than equity.
Healy said it would be possible for ADM to add enough debt to do the deal at $16 per share and just barely maintain its credit rating, although it would probably need to sell off Viterra’s crop input stores to stay within a comfortable debt level.
Bunge has the same credit rating concerns as ADM but probably wouldn’t be able to add enough debt to its balance sheet to complete the deal.
The president of Louis Dreyfus Canada has said in the past that the company would not be involved in any big acquisitions in Western Canada because the assets are overpriced.
Cargill is interested in expanding its market share in Canada and Australia but could face a big obstacle in that pursuit.
“The company would definitely receive pushback from the Canadian Competition Bureau,” wrote Healy.
“We would expect that Cargill would not be permitted to have greater than 50 percent market share in Western Canada (with Viterra’s assets it would be roughly 60 percent) so it would be forced to divest several port terminals and grain elevators in an acquisition scenario.”
She said a Competition Bureau review would slow the process and reduce Cargill’s chances in a competitive bid situation.
