With a self-made fortune exceeding $5bn, Johannesburg born and bred Ivan Glasenberg is comfortably the richest South African alive. Now based in Switzerland where he steers the mighty mining group Glencore [JSE:GLN], Glasenberg returns home regularly to visit family and expanding local business operations. He is unlikely, however, to be considering South Africa as a venue for his group’s new preferred investment sector – agriculture. Glasenberg is not afraid of going into geographies others avoid, but the politically-driven uncertainty around the SA agricultural would be a deterrent for even his entrepreneurial nature. As this excellent Bloomberg article points out, with $800m profit generated from its agriculture operations last year, Glencore is eyeing more opportunities in the sector, most likely in North America. – AH
By Jesse Riseborough and Javier Blas
(Bloomberg) — With only one acquisition in the past 11 months, Glencore’s billionaire chief Ivan Glasenberg is in the midst of a deal-making drought.
As the industry awaits his next move, the focus has been on whether he’ll make another run for the world’s second-biggest miner Rio Tinto Group, which spurned an approach last year. Underpinned by a stellar $800m increase in profits from the division last year, agriculture may offer a more tempting expansion opportunity for the company.
Glencore, one of the world’s largest traders of wheat, became a major agriculture player when it bought Canadian grain handler Viterra Inc. for C$6.1bn in 2012. Nonetheless, it still has no presence in the most important grain market of all: the US.
Although no move is imminent, businesses including Scoular, Andersons. and Lansing Trade Group LLC may be targets, adding physical assets like grain silos and rail terminals, according to people familiar with the company’s thinking who asked not to be named for reasons of confidentiality.
“It may well make sense for the next deal to be in agriculture,” Michael Rawlinson, co-head of mining and metals investment banking at Barclays, said in an interview. “That’s how it works at Glencore, bolster your contribution to profitability and you’ll be provided with greater resources for growth.”
Chief executive officer Glasenberg, a 58-year-old accountant turned coal trader, has largely built his $5bn fortune by growing the commodity producer and trader through more than 40 deals since becoming chief executive officer in 2002.
Chief financial officer Steve Kalmin said in December that Glencore, or G, should be added to the crop industry’s ABCD, the informal acronym representing the biggest players in grain trading - Archer-Daniels-Midland, Bunge, Cargill and Louis Dreyfus Commodities BV.
“There are very few remaining assets in the US as most of the capacity has been bought by the ABCD and Japanese traders,” said Karel Valken, global head of agri-finance at Rabobank, the largest lender to the farming industry.
Scoular is a more than century-old closely held grain trader based in Nebraska, while Andersons is a Nasdaq-listed company based in Ohio focusing on grains, ethanol and plant nutrients worth $1.1bn. Lansing Trade is a Kansas grain merchant co-owned by Andersons, Australian bank Macquarie Group Ltd. and its employees.
“Scoular is not seeking, and has no intention to entertain, proposals that would alter this independent ownership,” CEO Charles Elsea said in an e-mail. “Opportunities for growth as an independent company offer the highest return to our shareholders, and that is the path we will continue to pursue.”
Andersons and Lansing Trade didn’t respond to requests for comment.
While buying one of the larger ABCD companies would fill the US gap, a deal of that scale is probably too ambitious. Other smaller, independent grain businesses in the US include two Kansas-based closely held companies, Bartlett & Co. and Seaboard.
“The US has to be part of the portfolio of a global grain trader,” said Philippe de Laperouse, managing director of agribusiness consultant HighQuest Partners LLC and a former senior executive at Bunge. “Eventually, you need the US corn, soybean and wheat.”
Other than Viterra, Glencore’s recent takeover record has been patchy, at best.
The $29bn all-share acquisition of Xstrata, the world’s biggest exporter of power station coal, has been undermined by a collapse in the price of the fuel to the lowest in more than five years. Glencore last year decided to idle some of the coal mines bought in the 2013 deal.
Last year, it spent about $1.35bn buying an oil exploration and production company Caracal Energy in Chad. Since then the price of oil has plummeted almost 60%.
Glencore made an approach to Rio Tinto’s chairperson last year about a possible merger. After that was made public, Glencore had to forgo a fresh approach for six months. Even though that lock-up expires next month, a second run isn’t considered likely because Glencore’s share price has fallen relative to Rio, a larger company.
Chris Mahoney, a member of a British rowing crew that won silver in the 1980 Moscow Olympics, heads Glencore’s agriculture division and oversaw the takeover of Viterra. The company is now one of the world’s two leading traders of wheat, handling about 18% of the global seaborne trade.
The company is among the top-three agricultural exporters in Russia, the European Union, Canada and Australia — all key countries in the global food market. On top of trading and processing grains, Glencore also farms 444 790 acres of land in Eastern Europe, equivalent to about half the size of Rhode Island.
The late Marc Rich, who in 1974 created the company that later became Glencore, started the agriculture business in 1982 after buying Dutch grain trader Granaria Group.
The company reported adjusted earnings from its agricultural products business of $992m last year, up from $192m a year earlier. That was underpinned by a fourfold increase in its marketing division, thanks largely to record wheat harvest in Canada and Europe last year.
Glencore’s most recent deal was the purchase of a 50% stake in an agricultural export terminal in northern Brazil from Chicago-based Archer-Daniels-Midland.
In “agriculture, because it’s so geographical, very small and prone to seasonality, you do get these big arbitrage opportunities,” Ben Davis, a commodities analyst at Liberum Capital. in London, said by phone. “I definitely imagine they are going to increasingly go that way.”