The firm, formerly known as Glencore Agriculture, made the headlines in 2017 for a failed takeover approach to Bunge, one of the giant names of global grain trading, then valued at $11 billion (all figures US$).

Four years later, its owners have not made any sizeable deal and are still exploring ways to show value at a time of sustained higher grain prices. They are more likely to buy smaller or privately-held companies, expanding mostly in the U.S., but also South America and Australia, where Viterra already owns assets, the sources said.

Glencore owns 50 per cent of Viterra, having sold the other half to Canadian pension funds CPP Investments and British Columbia Investment Management Corp. (BCI) in 2016, for a total $3.125 billion.

Glencore, Viterra and CPP Investments declined to comment. BCI was not immediately available to comment.

With an EBITDA (earnings before interest, taxes, depreciation and amortization) of $991 million in the first half of 2021, the company holds 180 storage and handling facilities, 30 processing and refining plants and 25 port terminals, used to handle millions of tonnes of grains, oilseeds, pulses, rice, sugar and cotton around the world.

The company’s last deal was in 2020, when it bought out the stake it didn’t already own in Argentine soy crushing plant Renova from its bankrupt partner.

Other large western grain trading houses, including Archer Daniels Midland, Cargill and Louis Dreyfus, which battled years of global oversupply and thin margins, have seen their fortunes turn during the COVID pandemic as governments and food companies rushed to stockpile.

Still, the sector is ripe for a wave of consolidation similar to the mergers and acquisitions in the farm chemicals and seed industries to face off stiff competition from Asian rivals and guarantee supplies against shortages.

There is a big number of medium-sized companies and co-operatives, including The Andersons, Scoular and CHS among others, in the U.S., where agriculture and food contributes more than $1 trillion a year to the economy.

— Clara Denina is a Reuters correspondent in London, England; additional reporting by Maiya Keidan in Toronto.

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The business includes the brands Stork and Flora, the latter of which is sold under the name Becel in Canada and several European countries, and as Promise in the U.S.

The sale of the business officially kicked off in late September, with Unilever’s banks sending out confidential information to a series of heavyweight buyout funds which have been working on this deal since the start of the summer, the sources said.

The auction has been dominated by private equity firms which have been lured by the unit’s strong profit margins. But the valuation might prove difficult, as Western consumers cut back on bread and margarine, the sources said.

International investors have teamed up in three rival consortiums consisting of Bain Capital and Clayton Dubilier + Rice (CD+R) as part of one group, Blackstone and CVC Capital Partners as part of a rival group, and KKR joining forces with Singapore’s sovereign wealth fund GIC.

U.S. investment fund Apollo was instead looking to bid alone, the sources said.

Industry players including U.S. agricultural trader Archer Daniels Midland have decided against bidding, the sources added.

Blackstone, CD+R, Bain, CVC, KKR and Apollo declined to comment, while Unilever and GIC were not immediately available for comment.

The sale, which is led by Morgan Stanley and Goldman Sachs, could fetch as much as six billion pounds (C$9.9 billion/US$7.8 billion) and was expected to wrap up toward the end of 2017, the sources said.

In its bid to exit from the shrinking margarine business, Unilever agreed last month to exchange its spreads unit in South Africa for Remgro’s 26 per cent stake in Unilever’s South African subsidiary, a deal worth US$900 million.

The consumer giant has been working hard to boost its margins and performance after rebuffing a surprise US$143 billion takeover bid from Kraft Heinz this year.

Unilever’s underlying operating margin improved 180 basis points to 17.8 per cent in the last six months, helped by an acceleration of cost-savings programmes, and a 130-basis point drop in brand and marketing spending.

On Sept. 25, Unilever made a 2.27 billion-euro (C$3.3 billion) swoop on fast-growing cosmetics company Carver Korea in a bid to build a global beauty business.

— Reporting for Reuters by Pamela Barbaglia, Dasha Afanasieva and Clara Denina.

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Glencore, whose ag unit includes Canada’s top grain handler, Regina-based Viterra, declined to comment.

Bidders include a different Canadian pension fund, state-backed Saudi Agricultural and Livestock Investment Co. (SALIC) and Qatar’s sovereign wealth fund, the sources said.

SALIC — which already owns a stake in Canadian grain handler G3 Canada, the former Canadian Wheat Board — and Qatar’s sovereign wealth fund were not immediately available to comment.

Last month, CPPIB agreed to buy a 40 per cent stake in the unit for $2.5 billion, placing the equity value of the business at $6.25 billion (all figures US$). Including inventories and debt, the unit is valued at closer to $10 billion.

The 9.9 per cent stake is valued at around $625 million.

Glencore had been aiming to close the deals at the same time in the second half of 2016, the sources said.

“Negotiations are ongoing… people who lost out are still trying to get on board, but Glencore will struggle to get more money for it,” one said.

The London-listed company announced its intention to sell a minority stake in its agricultural unit in September, after shareholder pressure to see it cut debt prompted a slew of measures including asset sales, reducing capital expenditure, suspending dividend payments and raising $2.5 billion of new equity capital.

The group said it aimed to cut net debt to between $17 billion and $18 billion by the end of 2016, down from a peak of $30 billion last year.

One sticking point to the deal is whether the smaller stake holder will have voting rights, as CPPIB does, the sources said.

The agriculture business allows Glencore to trade grains, oilseeds, rice, sugar and cotton.

It generated core earnings of $524 million in 2015 and had gross assets of more than $10 billion.

— Reporting for Reuters by Clara Denina and Sarah McFarlane in London, England.

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Selling assets is one prong of a wider strategy by the Swiss-based trader and miner to cut about a third of its $30 billion debts and regain investor trust, after its shares tumbled by about three-quarters this year to record lows in tandem with weak global commodity prices (all figures US$).

Glencore declined to comment while COFCO was not immediately available to comment.

Last month Glencore said it was hoping to raise $2 billion from selling assets including a minority stake in its agriculture assets by early next year. The sources did not say the likely size of the stake being sold or the likely amount it would raise.

UBS analyst Myles Allsop has valued Glencore’s entire agriculture business at between $10 and $12 billion.

Sources said Glencore is creating a separate legal entity for the assets involved, expected to be mostly those inherited from the C$6.1 billion purchase of Canadian grain handler Viterra in 2012, a deal which boosted its grain operations in Canada and Australia in particular.

One source said Glencore was considering selling minority stakes to several parties but no more than 49 per cent of the new entity.

“They (agricultural assets) are a business that Glencore wants to grow, but that requires capital and Glencore doesn’t want to put the capital into it because of the balance sheet… so they say let’s sell part of it,” said a source.

It was not clear which Saudi Arabian sovereign wealth fund was involved in the talks, but state-backed Saudi Agricultural and Livestock Investment Co. (SALIC) has been active in the sector, having entered a joint venture with U.S. grain trader Bunge Ltd to invest in Canadian grain handler CWB in April.

SALIC did not respond to a request for comment.

China’s COFCO has also been expanding its agriculture activities, having invested $2.8 billion in 2014 via joint ventures with Noble Group’s agribusiness and Dutch grain trader Nidera, after taking substantial stakes in the companies.

Two sources said Canadian pension funds and Japanese trading houses were also interested in a stake in Glencore’s agriculture assets.

One banker said Canadian pension fund CPPIB is taking a close look at the opportunity.

CPPIB declined to comment.

Sources said Glencore had appointed banks Citigroup and Credit Suisse to handle the sale.

— Reporting for Reuters by Sarah McFarlane and Clara Denina in London and Euan Rocha in Toronto. Additional reporting by Freya Berry and Dmitry Zhdannikov in London, Henning Gloystein in Singapore, and Aaron Sheldrick in Tokyo.

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