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Glencore approaches Bunge, in quest to ramp-up in agriculture

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Glencore said that its agriculture division it had made an "informal approach" to Bunge over a deal which would fulfil long-held plan to win scale in the farm sector, ambitions restated in February.

Swiss-based Glencore said that its Glencore Agriculture business - in which it sold a 50% stake last year to two Canadian pension funds for more than $3bn – had approached Bunge "regarding a possible consensual business combination".

Separately, Bunge - one of the big four "ABCD" group of agricultural trading houses, with Archer Daniels Midland, Cargill and Louis Dreyfus – said that it was not not engaged in talks with Glencore.

"Bunge is committed to continuing to execute its global agri-foods strategy and pursuing opportunities for driving growth and value creation," the group said.

Bunge shares closed up 16.6% in New York overnight, giving it a stockmarket capitalisation of some $11.5bn, with first reports of the approach released before the Wall Street close.

Glencore shares eased 1.6% to 287.4p in early deals in London on Wednesday.

'We need infrastructure'

Glencore's approach follows a longstanding quest to ramp up in agriculture, a sector in which chief executive Ivan Glasenberg has long voiced ideas of tie-ups.

In February, Mr Glasenberg told investors that in agriculture "we need to definitely grow South America and US a bit more" – a footprint in which Bunge has particular strength.

Indeed, it was tight oilseed crushing margins in South America, as a hold-out by Brazilian farmers for higher prices squeezed available soybean supplies, that was blamed primarily for a tumble in earnings in the January-to-March period.

Mr Glasenberg added: "We need infrastructure.

"Infrastructure is the key to the business. You can't trade in the ag space without big infrastructure."

Xstrata strategy revisited?

However, Glencore's ambitions have been undermined by the extent of its existing debts, which have hampered its ability to pay for any significant takeovers – without incurring the wrath of ratings agencies and investors.

Mr Glasenberg said in February that the sale of the stake in its ag business had been part of a "shrink to grow" strategy, allowing the deconsolidation of the business from the group accounts, and so creating a fresh balance sheet.

The idea was "was to set up a structure where we can grow. We've always said in the ag space, we need to grow, we want to grow.

"We decided we didn't want to do that all on the Glencore balance sheet.

"It would have been big expenditure, there's big assets you'd have to buy. And, therefore, having a partner was a way to do it."

He likened to the strategy behind the group's creation of mining group Xstrata "where we used 60% of the public's money, 40% of our own money.

"We owned 40% and that was the vehicle that we used to grow Xstrata."

By Mike Verdin

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