A worker inspects wheat grain at a storage facility operated by Bunge in Ukraine © Bloomberg
Investors punished Bunge, one of the world’s top food commodities traders, after it announced its biggest acquisition in seven years by taking an almost $1bn stake in a palm-oil group.
New York-listed Bunge’s main business is buying grains and oilseeds from farmers and shipping them around the world. The division has suffered as low prices have prompted farmers to hoard grain and customers have hesitated before securing supplies.
The company also sells vegetable oils derived from crops such as soyabeans and rapeseed. Bunge said on Tuesday it would expand that business by spending $946m to acquire a 70 per cent stake in IOI Loders Croklaan, which supplies palm and other tropical oils for use in products from puff pastry to infant formula.
Soren Schroder, chief executive, said the deal would be a “game changer” by raising Bunge’s earnings from edible oil blends, which tend to have higher and steadier profit margins than trading bulk commodities.
Bunge last year handled 7m tonnes of edible oil products, while Loders’ oil volumes totalled 1.6m tonnes.
But Wall Street doubted that the deal, the biggest for Bunge since a 2010 expansion in Brazilian sugar milling, would quickly boost profits. The company’s shares sank 5.6 per cent to $71.51 at midday in New York.
The deal comes as Bunge faces potential takeover interest from Swiss-based commodities giant Glencore, which in May disclosed that its agricultural arm had approached the company about a “possible consensual business combination”.
The transaction “destroys value,” said Heather Jones, analyst at Vertical Group, who downgraded Bunge stock on the announcement. “It also makes a takeover less likely and we wonder whether that is the true motivation for the acquisition,” she said.
Mr Schroder said in an interview that discussions with Loders, a unit of Malaysian palm oil producer IOI Corporation, began about two years ago and that blocking a takeover was not the rationale. “I can assure you that is not the case,” he said.
Bunge identified growth in edible oils as a priority in July, when it announced a $450m cost-cutting and competitiveness programme. The company entered into a $900m loan agreement with Sumitomo Mitsui Banking Corporation, which it may use to finance the Loders purchase.
Mr Schroders said that while Bunge would borrow to help finance the acquisition, which is expected to close in 12 months, it “will pay itself back in reasonably short order”.
Mr Schroder reiterated his belief that consolidation was necessary in the grain handling industry as traders were squeezed between farmers and customers. “It’s clearly needed. This deal doesn’t change that,” he said.
About half of Bunge’s palm oil would come from IOI, which in 2016 was shunned by consumer goods groups over deforestation and labour abuses in its supply chain. This year IOI pledged to tackle these problems.
Mr Schroder said IOI had “completely revamped their sustainability policy. I think it is industry-leading.”
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