Bunge (BG)-Viterra Merger to Create Global Agribusiness Company
Bunge Limited BG has entered into a merger agreement with Viterra Limited that will create one of the world’s largest agribusiness companies. The combined entity will boast an enhanced global network with a diversified agriculture network covering all major crops. This will position BG well to serve farmers and end customers. The company’s shares have gained 3% on the news.
Viterra, which is owned by Glencore Plc GLNCY, operates a network of agricultural storage, processing and transport assets across 37 countries. The merger has been unanimously approved by the boards of directors of both Bunge and Viterra. It is expected to close by the mid of next year, subject to the satisfaction of customary closing conditions, which includes receipt of regulatory approvals by Bunge shareholders.
Financial Aspects of the Deal
Per the agreement, Viterra shareholders would receive approximately 65.6 million shares of Bunge stock (total value of around $6.2 billion) and approximately $2 billion in cash. Bunge will also assume $9.8 billion of Viterra’s debt.
Bunge plans to repurchase $2 billion of its stock to boost its adjusted earnings per share. The company intends to complete the share repurchases within 18 months of the closing of the transaction. Viterra shareholders would own 30% of the combined company upon the close of the transaction and approximately 33% after the completion of Bunge’s share repurchase plan.
Strategic Rationale
The combination of both the companies’ highly complementary asset footprints and distribution network will connect the world’s largest production regions to areas of fastest-growing demand. This will enhance the geographical balance and adaptability of their global value chains. A diversified global mix of earnings across processing, handling and merchandising, and value-added products will lead to solid cash flow generation.
Along with increasing operational efficiency, the combination will further enhance Bunge’s innovation know-how. This will equip the company to address the pressing needs of food security, efficiency for end-customers, market access for farmers, and sustainable food, feed and renewable fuel production. Additionally, the combination is expected to benefit from significant incremental network synergies across joint commercial excellence opportunities, vertical integration efficiencies, and improved logistics optimization and trading optionality from a larger and broader network.
The merger is expected to lead to around $250 million of annual gross pre-tax operational synergies in the first three years. The larger, more diversified footprint of the combined company will ensure more stable cash flows. The improvement in the business risk and credit profile is expected to drive capital structure efficiencies and cost-of-capital benefits. The transaction, along with Bunge’s $2 billion share repurchase program, is expected to be accretive to Bunge’s adjusted EPS in the first full year post closing. It is expected to improve with the realization of synergies.
Price Performance
Shares of Bunge have lost 4.9% over the past year compared with the industry's 2.9% fall.
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Zacks Rank & Stocks to Consider
Bunge currently carries a Zacks Rank #3 (Hold).
Some better-ranked stocks in the basic materials space are Piedmont Lithium Inc. PLL and Franco-Nevada Corporation FNV. PLL and FNV currently carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The Zacks Consensus Estimate for Piedmont Lithium’s earnings per share is pegged at $6.29 for 2023. Earnings estimates have been revised 62.9% upward in the past 60 days. PLL has gained 22.5% in a year.
The Zacks Consensus Estimate for Franco-Nevada’s fiscal 2023 earnings per share is pegged at $3.51. Earnings estimates have moved 9.3% north in the past 60 days. FNV has a trailing four-quarter earnings surprise of 2.8%, on average. Its shares have gained 3.6% in the past year.
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Glencore PLC (GLNCY) : Free Stock Analysis Report
