The New York Times DealBook column is always a great source of nuanced detail about mega mergers. Their view is that Glencore's interest in Viterra is all about grain, specifically wheat. Glencore will add Viterra's grain assets in Canada and Australia as growth in Asia boosts demand. This purchase comes in anticipation of the deregulation of the Canadian wheat market, one of the most important export markets for the grain. The Canadian Wheat Board ($5.1bn sales in 2010), has enjoyed a monopoly to market wheat and barley from the prairie provinces of western Canada for decades. Starting from 1 August 2012, Canadian farmers will be able to sell to entities other than the wheat board. Viterra owns more than half of the grain export capacity in Canada as well as very significant grain export capacity in South Australia.
An important step in the deal is that Glencore has agreed to spin of what they feel are non-essential assets to Agrium Inc. ($1.8 billion) and Richardson International Ltd ($800 million). Agrium is a retail supplier and a global wholesale producer and marketer of fertilizers in North America, South America, and Australia. They would acquire approximately 90 percent of Viterra's Canadian Ag-retail facilities, all of their Australian Ag-retail facilities, as well as their minority position in a nitrogen facility located in Medicine Hat, Alberta.
Richardson International Ltd is a worldwide handler and merchandiser of all major Canadian grown grains and oilseeds, and a global player in agriculture and food processing. They will acquire Viterra assets that include grain handling, crop input and processing facilities and related working capital.
The deal will be reviewed by Investment Canada, and the Competition Bureau. Teaming up with Canadian partners has "largely mitigated" the investment risk, BMO Capital Markets said. Prime Minister Harper seems to agree, welcoming the efforts by Glencore to keep assets in "Canadian hands".
Finally there is a strong possibility that there is a sequel to this deal waiting in the wings. U.S. based grain (and Fertilizer) trader Gavilon Group LLC has been on the market since January. Stay tuned...