CPPIB to acquire stake in Glencore agriculture unit in $2.5-billion deal – by Ian McGugan (Globe and Mail – April 7, 2016)


The Canada Pension Plan Investment Board has snagged itself a bargain – but it needs an outburst of volatility in farm prices to really make its new acquisition pay off.

The guardian of a big slice of Canadians’ collective retirement wealth is paying $2.5-billion (U.S.) for a 40-per-cent stake in Glencore PLC’s agricultural trading operations. The price values all of the Glencore Agricultural Products unit at just $6.25-billion, which is at least a billion dollars less than most investment banks had pegged the business at in more prosperous times.

“I think it’s a pretty good deal for the pension board,” said Craig Pirrong, a professor of finance at the University of Houston and expert on commodity trading. Glencore is under pressure to raise cash and pay down its massive debt, which probably resulted in the very reasonable price, he said.

But it is rare to find a tempting discount without at least some risk attached, and it should be noted that the CPPIB’s apparent bargain involves a gamble that might not be obvious at first glance. The pension fund has to hope that the business of agricultural trading will rebound from its current low point.

A quartet of huge firms – Archer-Daniels-Midland Co., Bunge Ltd., Cargill Inc. and Louis Dreyfus Group – dominate global ag trading, and each member of the so-called ABCD foursome has sustained some painful bruises in recent months.

At publicly traded Archer-Daniels-Midland and Bunge, share prices have shrivelled by more than a quarter. At privately owned Cargill, revenue has slid by a double-digit percentage.

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