Industry giant | Agriculture only 8.4 percent of company’s sales revenue
Farmers who think of Viterra as a prairie giant might be surprised to see that it appears to others as a corporate pygmy.
However, the pygmy is about to get bigger.
“We believe Glencore will be able to market Viterra’s volumes more efficiently, effectively and benefit from additional regional price arbitrage and blending opportunities,” says a UBS Investment Research report on the Glencore takeover of Viterra.
“There are also some operational synergies in Australia where the Glencore-Viterra assets overlap.”
UBS, which is a Swiss investment bank, and Canada’s BMO Capital Markets see Glencore’s purchase of Viterra as a small incremental expansion for Glencore overall, but a significant one for its agriculture division.
Read Also
Man charged after assault at grain elevator
RCMP have charged a 51-year-old Weyburn man after an altercation at the Pioneer elevator at Corinne, Sask. July 22.
UBS predicts that Glencore will increase earnings per share by only two percent next year by adding Viterra’s earnings to its total, but will significantly increase the size of its agricultural operations, which is now the global commodity giant’s smallest commodity division. Glencore’s mining and minerals division is much larger and the basis of its wealth.
Agriculture will produce 8.4 percent of Glencore’s sales revenue this year and 5.4 percent of its pre-tax operating earnings, UBS said.
BMO said Glencore’s agriculture division now contributes seven to eight percent of the company’s pre-tax operating earnings, which will jump to 12 percent after the Viterra takeover.
Glencore’s present agricultural operations include companies that crush oilseeds, produce biodiesel, produce ethanol, mill grain and store crops in-country and at port. Most of Glencore’s operations are in Central and South America, Australia, Europe and the former Soviet Union. It has had little presence in North America.
Even though Glencore’s world agriculture production, processing and trading operations occur on six continents, BMO described the pre-Viterra agriculture division as “modest-sized” and that “agriculture plays a minor part in the industrial asset total.”
Glencore is also in the middle of a takeover of fellow global commodity giant Xstrata, which is a much more significant move for the company.
Investment analysts consider it highly likely that shareholders and the federal government will approve Glencore’s takeover of Viterra, mostly because Glencore is paying top dollar and is ensuring that Canadians and farmers don’t become worried about a foreign company getting control of prairie grain.
No one in the investment analysis industry seems to think Glencore bought Viterra cheap. UBS said it is buying the company at the upper end of the price range for similar agricultural companies.
BMO considered the $16.25 per share price to be “a very full price.”
