Viterra shares soar anew as it confirms takeover talks

Shares in Saskatchewan-based grain handler Viterra Inc. soared anew when trading resumed at midday Thursday after being halted so the firm could announce that outside buyers have started due diligence procedures on the company, a key step toward a possible sale.

Its stock closed up $1.43, or almost 10 per cent, at $16.08 on the Toronto Stock Exchange. The price has increased by 46 per cent in five trading days.

Viterra said in a statement that "a process has been established" whereby interested parties are meeting with the company's board to discuss possible takeover offers for the company. Canada's largest grain handler, Viterra is worth just under $6 billion and handles about 45 per cent of Canada's harvest.

The company added it has hired financial and legal advisers for the process, and confidentiality clauses have been signed with other companies that have examined the company's books with a view to making an offer.

Shortly after releasing its earnings statement last week, Viterra hinted that multiple interested parties had approached the company about a possible takeover, but offered few details. Viterra's shares are up by almost 40 per cent since then.

Among the names rumoured to be considering a bid for Viterra are U.S. food giant Cargill and Swiss commodities trader Glencore. Canadian fertilizer company Agrium has also been mentioned, as have U.S. food conglomerates Archer Daniels Midland and Bunge.

Media reports Thursday suggested a $16-a-share baseline price had been established for any takeovers, but in a statement, Viterra said those reports were premature.

"Viterra cautions investors not to rely on these press reports as there can be no assurance that a transaction will occur and that if one does occur, there can be no assurance at what price it will be completed," the company said.

Multiple suitors

"It looked like it was going to open at $16, and I don't think the exchange was willing to let that jump on such a gap without any news to back that up," said Jason Zandberg, an analyst with PI Financial in Vancouver.

He said he's not sure whether or not the $16 baseline price report is true, "but it definitely sparked the imagination of the markets, anyway."

"Personally, I think that we are getting into the froth of the valuation for Viterra and we'll know more details in terms of valuation when a formal bid is announced," Zandberg said.

Viterra was formed in 2007 when the former Saskatchewan Wheat Pool merged with its competitor, Agricore United.

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

It faces opportunity not only in the lifting of the Wheat Board’s monopoly, but also in the expected increase in demand for food.

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

Regulatory hurdles

But a takeover might also revive the kind of political debate that arose in November 2010 with the $40-billion US hostile takeover offer for Potash Corporation of Saskatchewan, the world’s biggest fertilizer company, by Australian miner BHP Billiton.

Ottawa rejected that attempt following stiff opposition by Saskatchewan Premier Brad Wall, several other provinces and PotashCorp itself.

Viterra recently acquired Australia's largest grain handler, and has operations across Canada, the United States, New Zealand and China.