ADM and Bunge merger: Deal could be reached this week

Since late last month, the spotlight has been on the two companies as news broke that top US grains merchant ADM had approached its smaller rival New York-headquartered Bunge with a takeover offer.

Despite the two companies remaining tight-lipped about any sort of deal, claiming they don’t talk about speculation and rumor, more information is emerging about the talks now being in an advanced stage and a possible tie-up being imminent - maybe even an announcement this week.

Unnamed sources who are familiar with the matter, are understood to have spoken to Bloomberg. An ADM-Bunge deal could be the end of a company that has remained independent for two centuries (Bunge was founded in 1818).

It would create a such a sizeable company, with projected revenues of approximately US$100 billion, that a giant of this size would be a formidable negotiator when it comes to prices.

As a result, any merger would likely be highly scrutinized and face antitrust hurdles from regulators in a number of countries. There may be a need for divestment of assets such as processing plants and grain silos and this could pave the way for further consolidation in the grains trading industry with competitors snapping up operations.

Following news about the advanced talks, Bunge shares increased, closing on the New York stock exchange yesterday at US$82.55, while, ADM was US$42.

And ADM has also just reported its financial results for the quarter ended December 31, 2017, with Q4 earnings of US$1.39 per share, US$0.82 per share on an adjusted basis.

Price pressure
Grain prices have been volatile for a while and this potential deal happens against a backdrop of oversupply where grain traders are trying to make money buying, selling, storing and shipping commodity crops. Because of the global glut, traders, including ADM, Bunge, Cargill and Louis Dreyfus Co, which together are known as the “ABCDs” and dominate the industry, have been tightly squeezed.

Last November, the grain glut impacted Bunge’s profits as the company continued to be impacted by market and industry headwinds, prompting the US agricultural commodities trader to reduce its earnings guidance for the year in Agribusiness and Sugar & Bioenergy, according to Q3 results.

The company said that the four-year slump in grain prices, prompted by the oversupply because of bumper harvests, is putting pressure on the business - at the time net sales were flat at US$11.42 billion and Bunge posted a profit of 75 cents per share.

However, the company said it remained positive, saying that the Agribusiness unit has improved sequentially year-over-year, despite a challenging environment.

ADM’s move on Bunge follows Anglo-Swiss multinational Glencore making an “informal” approach sparking possible takeover speculation last May.

The US National Farmers Union has previously said it opposes further consolidation in the agriculture industry.

By Gaynor Selby