Viterra confirms 'exclusive' takeover talks

Regina-based Viterra Inc. confirmed Monday it has begun "exclusive negotiations" on a takeover bid but did not name the would-be buyer.

Shares in Canada's largest grain handler lost ground when trading resumed after being halted earlier Monday for the announcement. The share price lost 24 cents, or 1.5 per cent, to close at $15.97 on the Toronto Stock Exchange.

Viterra shares are still up by 45 per cent in seven trading days, giving the firm a market value of $6 billion.

Bloomberg is reporting Glencore — one of the world's biggest commodities suppliers — is launching a joint bid along with Winnipeg-based grain trader Richardson International and fertilizer firm Agrium of Calgary.

Earlier speculation had suggested Glencore’s proposal would have it buy all of Viterra and then sell its retail fertilizer business to Agrium and a food-processing unit to Richardson.

Viterra confirmed last week that potential bidders have come forward with offers to buy the company. 

Viterra confirmed this week that it had established an auction process and acknowledged reports that said offers would need to be at least $16 per share.

On Monday, Viterra said negotiations were considering "a price which is consistent with our previous statement."

Three-way deal

The company again warned it could make no assurance of a deal or what price may be offered.  

The three-way deal might ease the federal review process, where Ottawa determines whether the takeover is of net benefit to the country. Ottawa blocked Australian mining giant BHP Billiton’s $40 billion US bid for Potash Corporation of Saskatchewan in late 2010.

Last week, Saskatchewan Premier Brad Wall said Viterra Inc. does not fit the province's definition of a strategic resource, but the fiscal and economic impacts of a potential takeover must be analyzed.

The premier said Ottawa would need to determine if any takeover would be of net benefit to Canada and Saskatchewan, but he noted it's different from PotashCorp because it doesn't involve a strategic resource.

Analysts have speculated that other interested companies include Bunge, Archer Daniels Midland Co. and Cargill Inc., all  based in the U.S.

But Scotiabank analyst Christine Healy wrote in a note to clients Monday that it was unlikely there would be many bidders willing to offer more than $16 for Viterra.

"We cover ADM and Bunge and believe it is unlikely that either company would risk its credit ratings or dilute its shareholders to acquire Viterra," Healy wrote.

"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, (French multi-national) Louis Dreyfus, Cargill, or (Hong Kong-based) Noble Grain are contenders at that price."

Healy noted that a Glencore offer, in conjunction with Agrium and the Richardson family, would be tough to beat.

"There is speculation that Glencore has teamed up with Agrium and Richardson to make a friendly bid for Viterra. We believe such a deal could be financed and would gain the required regulatory approvals."

Glencore extracts, ships and refines raw materials from coal to corn. It is based in the Swiss town of Baar but has its main listing in London.

Viterra has 45 per cent of the Canadian market and has a chance to greatly expand that with Ottawa’s move to end the Canadian Wheat Board’s monopoly over wheat and barley sales on Aug. 1.

CEO Mayo Schmidt predicted on March 8 that the end of the board’s monopoly will boost Viterra's annual earnings by 25 per cent to $50 million by 2014.

AIMCO is largest shareholder

Alberta Investment Management Corp. is the company's largest shareholder, with a stake of about 16 per cent or about 60 million shares. AIMCO is a Crown corporation owned by the province of Alberta, which manages $71 billion in assets invested on behalf of 26 pension, endowment and government funds.

An expected increase in demand for food could also boost the company's fortunes.

The UN Food and Agriculture Organization has estimated that world food output must increase 70 per cent to meet the needs of a global population that it predicts will grow to nine billion from seven billion by 2050.

Viterra, formerly the Saskatchewan Wheat Pool, changed its name in 2007 after taking over larger competitor Agricore United. It processes and ships grain and sells supplies to farmers.

Last month, Glencore agreed to a merger deal with Anglo-Swiss mining group Xstrata PLC in a move that will create the world's fourth largest natural resources group.

The combined company, to be called Glencore Xstrata with a combined market value of $90 billion, will control a chain of businesses from mining to the refining, storage and shipping of basic commodities like coal, copper and corn.

Its properties would also include major nickel mining and refining businesses in Canada, where Xstrata subsidiary Xstrata Nickel owns the former Falconbridge nickel company in Sudbury, Ont.