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Commodities firm could harvest value in Viterra through IPO or industry sale
Thursday 03 Feb 2022 Author: Tom Sieber

Commodities giant Glencore (GLEN) could be in line for a multi-billion-dollar windfall if calculations by analysts at UBS are right.

The company is rumoured to be thinking about offloading its near-50% stake in crop trading firm Viterra, which itself recently snapped up US rival Gavilon in a $1.13 billion deal.

Glencore is the world’s leading commodities trader as well as being one of the largest global mining firms – with significant exposure to copper, cobalt and nickel. All of which are expected to see higher demand amid a move to electric vehicles and renewable energy.

A GOOD TIME TO EXIT?

Viterra was officially spun out of Glencore as a standalone entity in 2020 after selling a chunk of the business to Canadian investors in 2016.

Supply chain disruption and weather impacts have led to a surge in agriculture prices, suggesting now would be a good time for Glencore to realise value from its remaining holding, whether by floating the business on the stock market or by selling to a third party.

According to a report, UBS has arrived at a $7 billion to $10 billion transaction value for Viterra, encompassing net debt of $2 billion. This is based on other deals in the sector, which have been pitched at around 10 to 14 times EBITDA (earnings before interest, tax, depreciation and amortisation), and Viterra’s own $1.6 billion of EBITDA in the 12 months to 30 June 2021 – of which Glencore’s effective share is $800 million.

M&A RUMOURS

Divesting its Viterra stake could provide Glencore with a helpful injection of capital. In turn this might be employed to accelerate its repositioning to be aligned with the energy transition.

It may also raise questions about the destiny of its thermal coal assets, which have benefited from recent strong pricing but are seemingly at odds with investors’ growing focus on ESG (environmental, social and governance) considerations.

A substantial inflow of cash could also help the company fend off interest from potential predators, with BHP (BHP) recently reported to be mulling an approach for the group.

Undermining the credibility of this rumour is Glencore’s ongoing exposure to coal, which was swelled by the $294 million acquisition of BHP’s stake in the Cerrejon coal mine in Colombia in 2021 as the latter moved away from the polluting fuel source.

Glencore’s then CEO Ivan Glasenberg, who has since been replaced by the firm’s former head of coal Gary Nagle, took a swipe at BHP at the time suggesting that ‘disposing of fossil fuel assets and making them someone else’s issue is not the solution and it won’t reduce absolute emissions.’

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