Bunge hires JPMorgan and Shearman & Sterling in Glencore defence

Bunge, the US grain trader that is fending off takeover interest from Switzerland’s Glencore, has bolstered its defences with the appointment of advisers.

The New York-listed company is working with JPMorgan Chase and law firm Shearman & Sterling as it seeks to remain independent. Bunge, which signalled earlier this year that it was willing to be part of tie-ups in the sector, has said it is not in “business combinations” discussions with Glencore and has refused to comment further.

The unexpected approach from Glencore, caught company off-guard, as it had been focused on a partnership or merger with the miner’s agricultural arm, rather than a sale. It is now reviewing options for dealmaking in the agricultural commodities sector.

Bunge’s rivals, which include Archer Daniels Midland, Cargill and Louis Dreyfus Company, would probably face antitrust issues if they attempted a tie-up with Bunge, say bankers and industry executives.

Glencore’s agricultural arm said last month that it made an informal approach to Bunge “regarding a possible consensual business combination”. The Swiss group’s interest has left the 200-year-old company, which has its roots in Amsterdam, on the back foot, with its shares jumping to $83.75, to their highest level since July 2015. They closed at $80.30 on Friday.

Bunge’s corporate governance bylaws lack the sort of mechanisms that could strengthen the hand of its board, as it tries to face down one of the mining industries most aggressive dealmakers, Ivan Glasenberg, Glencore’s chief executive.

Bunge, which is incorporated in Bermuda, does not have a poison pill to prevent an aggressor or activist investor from building a large stake and ousting its board, although one could be put in place.

“Bunge’s bylaw provisions are very shareholder friendly and would present a weak corporate defence against a potential hostile bidder or activist shareholder,” said Olivetree Securities, a brokerage. “A shareholder with at least a 10 per cent holding may call a special meeting.”

Mr Glasenberg declined to comment when asked on Thursday if he would launch a hostile bid for Bunge, which has a market value of $11bn. But he said Glencore was keen to grow its agricultural unit, and that Bunge would be a good fit for its business.

A takeover of Bunge, if it happens, would create one of the world’s largest agricultural trading merchants, with leading positions in crops such as soyabeans and wheat, and assets spread around the globe.

“We always said that we want to grow in those two countries [the US and South America]. That’s why we made the approach to Bunge,“ Mr Glasenberg told delegates at the St Petersburg International Economic Forum. “It is very big in the US and big in South America so we believed it would have been a good fit.”

Since Glencore completed the sale of 49.99 per cent stake in its agricultural unit to the Canada Pension Plan Investment Board and British Columbia Investment Management Corp last year, it has been examining potential deals.

The Swiss group has been talking to all the large agricultural traders over the past six months to see which might be open to a combination as they battle tough market conditions.

Large agricultural traders have struggled in recent years as bumper harvests and fierce competition have squeezed margins. As crop prices have declined, farmers have hoarded grain, reducing the volumes traded. At the same time, customers in fast-growing markets such as China are consolidating and using their size to buy directly from farmers.

Shares in Bunge surged on news of Glencore’s approach, rising from $70 to almost $84 before paring gains. Analysts at Credit Suisse said in a recent report that Bunge should sell itself to Glencore’s agricultural arm and $90-$95 per share was the right range for a deal.

Bunge and JPMorgan both declined to comment.