ADM approaches Bunge with merger offer
January 25, 2018
US-headquartered Archer Daniels Midland (ADM), one of the world’s largest grain traders, has approached its rival Bunge with a possible takeover offer that could rattle international agri markets.
According to an anonymous source, the move came as a response from ADM to the difficult global market situation large grain traders are facing due to oversupply of several key crops worldwide, Reuters reported on 19 January.
Several companies – such as Dow and DuPont, and Monsanto and BASF – had resorted to consolidation to remedy the situation, while others, including ADM, had expanded into higher margin sectors such as food ingredients.
“News of the ADM bid is a bit surprising given that ADM had been indicating the company’s strategic direction was more towards value-added rather than traditional commodities,” Farha Aslam, analyst at financial services firm Stephens Inc, told Reuters.
In 2014, ADM acquired natural ingredient firm Wild Flavors for approximately US$3bn in the company’s biggest deal to date.
Glencore approached Bunge in 2017 with a takeover offer, but Bunge rejected the deal at the time and a standstill deal was in effect until February 2018, prohibiting Glencore from making new unsolicited offers.
However, according to the Reuters source, Bunge rebuffing the Glencore deal could indicate that ADM might get the cold shoulder as well.
Aslam estimated that a reasonable value for the ADM-Bunge deal would be around US$90-95 per share of Bunge, but investment research and management company Morningstar said that the price could surpass US$100.
Should any merger deal materialise, it would likely face heavy scrutiny from regulators, who could be worried of a lack of competition in the market due to them approving some of the earlier larger agri firm mergers, such as the above-mentioned Dow-DuPont merger.
The largest hurdle could be ADM’s and Bunge’s overlap in grain origination and oilseeds processing and they would likely need to divest facilities in North America and possibly in Europe, wrote Reuters.
The acquisition was also expected to face opposition from farmers, who feared giving a larger market share to ADM could negatively impact the prices of soyabean, corn and wheat.
Peter Carstensen, law professor at the University of Wisconsin at Madison, told Reuters that grain farmers needed five or six active buyers to get a fair price for their crops, but the number of buyers had already been reduced to a “handful”.
“This is the kind of transaction that will screw farmers,” Carstensen summarised.