CALGARY - Viterra Inc. announced Monday that it is in exclusive talks with an unidentified potential buyer and analysts said a reported three-way deal led by Switzerland's Glencore International appears to be a likely outcome.
The Regina-based grain handler (TSX:VT) confirmed last week it had established an auction process and acknowledged reports that said offers would need to be at least $16 per share.
"The basis of this exclusive negotiation is at a price which is consistent with our previous statement," Viterra said in a release.
Several names have been kicked around as possible bidders for Viterra. Reports have said commodities trading firm Glencore is poised to make a bid with the help of Calgary-based Agrium Inc. (TSX:AGU) and Winnipeg agribusiness Richardson International.
Scotiabank analyst Christine Healy wrote in a note to clients Monday that such an offer would be tough to beat.
"We believe such a deal could be financed and would gain the required regulatory approvals," she wrote.
She said not many bidders would be willing to offer more than $16 per share for Viterra -- a deal that would value the company at around $6 billion.
It's unlikely U.S. agribusiness Archer Daniels Midland and Bunge would want to risk their credit ratings or dilute their stock for such a big acquisition.
"While ADM may be able to bid $16 per share, we believe it would need the proceeds from asset sales to maintain a strong balance sheet. We do not think Bunge, Louis Dreyfus, Cargill, or Noble Grain are contenders at that price."
A deal that would see Glencore buy Viterra and then sell its retail division to Agrium Inc. and other parts to Richardson makes sense, said Morningstar analyst Jeffrey Stafford.
"I think it could be a win for Agrium if the price is right," he said.
The larger the retail footprint, the more bargaining power Agrium would have with crop input providers that supply its stores, he said.
Agrium did a similar deal in Australia in 2010 when it bought AWB Ltd. for $1.1 billion.
Shortly after the deal closed, Agrium sold a large chunk of AWB to U.S. agribusiness giant Cargill Inc. Agrium was mostly drawn to AWB's retail business and decided to shed the grain trading and handling portion of the company.
Viterra's grain handling and food processing business would be a good fit for a company like Bunge, but Stafford said the price is likely too rich.
"For Bunge, you have to think about diluting the stock, taking on a lot of debt. They're just not in a cash position to make much of a dent on $6 billion. I think that makes them a little bit less likely as a bidder when it all shakes out."
But there may be good reason for the likes of Bunge and ADM to make a play for Viterra in the context of Glencore becoming a big competitor.
"Aside from valuation, there could be a defensive aspect to this bidding process, which could always result in a potential counter-bid," said Miller Tabak & Co. analyst Tim Tiberio.
"There's also the fact that to remain competitive and drive growth in this space, a global sourcing footprint and end-market diversity is key, especially during unexpected weather events."
Viterra is "a really rare asset in the global agribusiness value chain," said Tiberio
"It's a life-time event, where you have the opportunity to come into Western Canada and be assured of a potentially significant share of the wheat and canola export markets."
In its statement, Viterra again cautioned that there was no assurance that an agreement would result from the talks and that if one does occur "there can be no assurance at what price it will be completed."
Before the company revealed the takeover interest a week ago, Viterra stock was trading at about $11 share on the Toronto Stock Exchange.
Last week it climbed above $16, but on Monday, its shares closed down 24 cents, or 1.5 per cent, at $15.97.
The potential bids come as the company is poised to benefit from the end of the Canadian Wheat Board's monopoly on the marketing of wheat and barley in Western Canada.
Viterra, formed by the merger of the Saskatchewan Wheat Pool and Agricore United, is a grain handler, marketer and food processor with operations across Canada, the United States, Australia, New Zealand and China.
A foreign takeover of Viterra would face a review under the Investment Canada Act to see if it would be of net benefit to Canada.
Last week, Saskatchewan Premier Brad Wall said an evaluation by the province would weigh several factors, including the impact on the provincial economy, on farmers and on provincial revenues.
Wall also said the future of Viterra Inc.'s head office in Regina, where the company has 550 employees, would also be an important factor.
In 2010, Saskatchewan undertook a net benefit review of BHP Billiton's ultimately unsuccessful US$40-billion bid for Potash Corp. of Saskatchewan (TSX:POT). The study formed the basis of Saskatchewan's opposition to that deal and recommendation to Ottawa, which decides on such matters.
Alberta Investment Management Corp. is Viterra's largest shareholder with a roughly 16 per cent stake or about 60 million shares.
