With the end of the Canadian Wheat Board now virtually certain following the election of a Conservative majority, it was interesting to see that news coincide with a glimpse of a company that may soon play a bigger part in the Canadian grain-marketing future.
On May 4, Swiss-based Glencore, sometimes described as “the biggest company you’ve never heard of,” floated an initial public offering (IPO) on the London and Hong Kong stock exchanges.
Glencore was founded in 1974 by U.S. trader Marc Rich, who fled the country in 1983 after being indicted for racketeering, trading with the enemy (Iran) and dodging a $48-million tax bill. He was controversially pardoned by President Bill Clinton on his last day in office in 2001.
As well as starting Glencore’s rise to becoming the world’s biggest commodity trader, Rich established a powerful informal network of traders in other companies, around the world, a group who became known as “The Rich Boys.” Their activities, especially in trading oil from questionable regimes and their involvement in the Iraq “Oil for Food” scandal, were extensively documented in aBusiness Weekfeature in 2005 (still available on its website.) Rich sold the company to management in 1994 for US$600 million.
They were apparently trained well. The IPO now values Glencore at between US$48 billion and $58 billion, which will mean a nice paper gain for the company’s 485 partners. By way of interest, CEO Ivan Glasenberg controls 15.8 per cent of what so far has been one of the world’s largest private companies.
That makes him worth about $9.64 billion, though he says he has no immediate plans to sell shares. In the meantime, he’ll have an annual salary of 925,000 (C$1.46 million) plus a potential bonus of double that to tide him over.
Bigger than Cargill
Taking the so-far ultra-secretive company public requires it to release financial details. The company’s biggest interests are in mining and energy. It directly or indirectly employs more than 2,700 people worldwide in some 50 offices across 40 countries, and in its industrial operations more than 54,800 people in 30 countries.
In 2010, Glencore had revenues of US$145 billion and net income of $3.8 billion. That compares to $108 billion and $2.6 billion respectively for Cargill.
Last year Glencore handled 27 million tonnes of grains and oilseeds. It owns handling and processing facilities in Australia, South America and the former Soviet Union, where it’s the largest exporter. That role led to some controversy last year when Glencore reportedly had taken a long speculative futures position. Then on August 3, Yury Ognev, head of Glencore’s Russian grain unit, encouraged Moscow to ban wheat exports, saying: “From our point of view the government has all the reasons to stop all exports.”
Glencore later said that that was Ognev’s personal opinion, not the official one, but the effect was the same. Futures soared, and Glencore made a tidy profit. It protested that the resulting ban meant extra cost in substituting other grain against Russian contracts that it couldn’t fill because of the export ban.
One way or another, earnings at Glencore’s agricultural division more than doubled to $659 million last year.
Glencore hopes to raise $10 billion from the IPO, which it intends to use to fund further expansion, including buying farmland. It already owns 750,000 acres in Australia, Kazakhstan, Paraguay, Russia and Ukraine.
Glencore was one of the first exporters to move into Australia when the AWB lost its monopoly. With the same about to happen to the CWB, “the biggest company that you’ve never heard of” may soon be one you have.