Glencore, the world's largest commodities trader, has agreed to buy Canada's largest grain handler in a C$6.1bn (£3.9bn) deal that will shake up an industry which should flourish as global demand for food surges.
The company will acquire Viterra and then sell off some parts to Canada's Richardson International and Agrium, a step that should allay concerns that Ottawa could block the deal on national sovereignty or competition grounds. Viterra also has significant assets in South Australia.
The acquisition gives Glencore – long a powerhouse in oil and metals – a huge new presence in grains, an area now dominated by Archer Daniels Midland, Cargill and Bunge.
The Swiss-based trader wants to round out its portfolio in anticipation of a coming squeeze on global supplies of grains as the populations of China, India and other emerging economies soar and diets improve. Canada and Australia are among the world's largest grain exporters. The deal also comes as Canada prepares to loosen its Wheat Board's monopoly on marketing barley and wheat later this year.
"Canada as the second leg of the huge North American bread basket is going to be increasingly called upon to produce [crops] for the world," Rich Feltes, at RJ O'Brien said. "What seems to be a lot of money for this investment right now will, over the long term, prove to yield handsome returns on the dollar."
The deal, already endorsed by Viterra's board, requires shareholder approval and must pass regulator reviews. Glencore said it expected no problems and was already planning further expansion in North America.
Glencore, which is also in the throes of a £22bn takeover of the miner Xstrata, has earmarked agricultural commodities as an area for growth. To pay for the deal, it will use existing resources, while lightening the burden by selling the majority of Viterra's Canadian assets to Richardson and Agrium for C$2.6bn.