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Glencore's Bunge approach looks canny - but is it clever enough?

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Becoming a big force in agriculture is as easy as one, two, three.

At least, so Ivan Glasenberg may hope.

The Glencore chief executive, having turned the group into a big noise in the likes of coal and copper, is now trying the same in the farm sector.

Glencore's part-owned ag business, Glencore Agriculture, has made an "informal approach" to Bunge, one of the "ABCD" group of big traders in the industry.

And he is doing so in three steps.

Ready…

The first he has already achieved, to turn Glencore Agriculture into something of an acquisition vehicle.

The division would have struggled for access to finance if still a fully-owned asset of Glencore, whose borrowings have raised eyebrows among ratings agencies and investors, and forced Mr Glasenberg into a spell focused on good housekeeping.

But in selling a big stake in the division to two Canadian funds, he not only raised a stack of cash, but deconsolidated Glencore Ag - putting it at arm's length and giving it a life of its own.

That has freed it from any turbulence on the mother ship (and cut the risk from feedback the other way too).

…aim..

The second was to choose the right target.

Mr Glasenberg, a seasoned dealmaker, is not one to shy away from taking a big step.

And Bunge, while not a simple target, looks the easiest member of the ABCD group to swallow.

Buying Cargill, with a somewhat disparate family shareholding, looks tricky, besides the size of the enterprise, while Louis Dreyfus group's family owners, while having mulled selling a stake through flotation, do not look likely to cede control.

From that perspective, buying a stockmarket-listed group looks the easier course, and Bunge is a smaller enterprise than Archers Daniels Midland.

It also has a Dutch heritage, rather than US one, and boasts, for instance, being Brazil's top ag exporter. That makes it less likely to tweak any protectionist twinge in the Trump administration.

…fire

The third step was to choose the right moment.

Timing is always key in deals, and Mr Glasenberg has boosted his chances of success by striking in a difficult time for ag traders, amid weak crop prices and a relative lack of volatility. Bunge last month announced disappointing results, sending its shares down 10% in a day.

That may have renewed questions among Bunge investors over the sustainability of a strong recovery in the shares last year, although the stock, which stood at $81.70 after a jump spurred by Glencore Ag's approach, still stands well below the high of $135.00 it reached nine years ago.

Fighting chance

This does not in any way guarantee success in the deal.

Indeed, that Bunge shares rose by 16%, well short of the premium that Glencore would likely need to pay to secure a takeover, indicates that the market sees significant doubt in a deal's success.

But Mr Glasenberg has given himself a fighting chance of spreading into ag trading the consolidation wave evident in seeds and agrichemical groups.

By Mike Verdin

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