By Karl Plume
A merger of U.S. grains merchant Bunge Ltd with rival Viterra would grow the combined entity's businesses in the U.S., Brazil and Australia and may raise competition concerns in parts of Canada and Argentina, where key oilseed processing assets overlap, analysts said.
Sources last week said Bunge and Glencore Plc-owned Viterra were in talks for a potential mega deal that would further consolidate global agriculture trading and bring Bunge closer in global scale to leading rivals Archer-Daniels-Midland Co and Cargill Inc.
"Combining Bunge and Viterra in regions like North America and Europe certainly would strengthen the combined company's presence there and put them more on par with ADM," said Seth Goldstein, equity analyst with Morningstar.
"Bunge is already the leader in South America. That might be a region where there might be some divestitures required if a deal were to close there to make sure that there's still competition," he added.
J.P. Morgan equity research estimated the combined company's market cap would be around $25 billion, compared with ADM's $38.9 billion market cap.
In the United States, Viterra's business of buying and selling grain expanded via its purchase of Gavilon last year. A merger would enhance Bunge's grain exporting and oilseed processing businesses in a place it has a smaller presence than ADM and Cargill, one analyst said.
Bunge had sold 35 of its U.S. grain elevators to Zen-Noh Grain Corp in 2020 as it sought to pare back underperforming assets. Bringing in Gavilon's grain sourcing network would help feed Bunge's nine U.S. oilseed processing plants and its two export terminals at the Gulf Coast and the Pacific Northwest.
But in Canada, the companies have some overlap in their crushing businesses, which buy canola from farmers and turn it into vegetable oil and livestock feed.
Bunge is the world's largest oilseed processor.
Bunge and Viterra each crush canola on the Canadian Prairies – including plants in close proximity in southern Manitoba - as well as in eastern Canada. Antitrust authorities may require some of those assets be offloaded before approving the merger, some analysts said.
Canada's Competition Bureau declined to comment.
The two companies united would also create a dominant exporter in Brazil and a market-leading soybean crusher in Argentina, analysts said.
Bunge last year was the largest corn and soybean exporter from Brazil, the world's top source of the staple crops for making animal feed and biofuels, according to data from shipping agent Cargonave. Viterra was the third largest corn exporter and No. 7 soybean shipper.
Combined, the companies accounted for about 23.7% of Brazil corn exports in 2022 and 20.9% of Brazil soybean exports, Cargonave data showed.
However, an analysis by Brazil's antitrust agency CADE would focus on a potential merger's effects on the domestic market, said Sao Paulo based antitrust lawyer Vicente Bagnoli, who is not involved in the deal.
"I think CADE would not block this deal because there are other competitors on the market," he said.
Regulatory authorities may focus on a merged company's dominant share of soy processing in Argentina, the world's biggest exporter of soymeal and soy oil, although Goldman Sachs research noted that capacity would remain under 25% of the market.
Argentina's National Commission of Defense of Competition declined to comment.
A merger would expand Bunge's physical grain storage and handling capacity in major wheat exporter Australia, where the company currently operates just two grain elevators and a port terminal in the western part of the country. Viterra has 55 storage sites in South Australia and western Victoria and six bulk grain export terminals.
The marriage would also unite Bunge, the largest oilseed meal producer in the world, with Australia's biggest protein meal importer Viterra.
In Ukraine, the world's top sunflower producer and largest supplier of sunflower oil, a combined Bunge-Viterra would have three oilseed processing plants across the country's south and east, in Kharkiv, Dnipro and Mykolaiv.
(Reporting by Karl Plume in Chicago, Rod Nickel in Winnipeg, Ana Mano in Sao Paulo and Maximilian Heath Buenos Aires; Editing by Caroline Stauffer and David Gregorio)
