The Glencore Group has found an investment fund buyer for a minority stake in its global agricultural division, which could lead to a majority holding and an independent flotation at a later stage.
Glencore says it has reached a definitive agreement with the Canada Pension Plan Investment Board (CPPIB) to acquire a 40% equity interest in Glencore Agricultural Products (Glencore Agri) for $2.5 billion, subject to regulatory approval. This would value Glencore Agri at $6.25bn.
The Group announced in September last year that it was seeking to reduce its $30 billion debt burden, exacerbated by the global collapse in mined and energy commodity values. While Agri contributes only 10% of group revenues, an equity sale was part of a series of measures mooted to raise cash.
As part of a “mutual commitment to a successful long-term partnership”, Glencore and CPPIB have agreed to an initial four year lock-up period subject to a carve-out for Glencore to sell up to a further 20% stake in the Agri business. After eight years, either of the partners could call for an initial public offering of Glencore Agri.
The initial 40% divestment is expected to close in the second half of 2016, with the stake held by a wholly-owned CPPIB subsidiary. Glencore Agri will have its own board of directors, with two from CPPIB and three from Glencore including current Agri chief executive Chris Mahoney.
"We are pleased to be partnering with CPPIB as we embark on the next stage of the development of Glencore Agri,” notes Glencore Group chief executive Ivan Glasenberg. “Under Glencore's ownership the business has been successfully rebased, particularly following the Viterra acquisition in 2012 and is well-positioned to benefit from long-term global macro and sector trends. CPPIB has a proven track record in the sector and shares our vision for the future growth of the business." Viterra is a Canadian grain trading business.
Mr Mahoney adds: "This is an important day in the evolution of Glencore Agri, and we look forward to working with CPPIB to continue to build the Glencore Agri business over the long-term. With the investment potential created by this partnership, and given the existing network of high-quality origination, logistics and port assets in key export regions, the business is now well-placed to take advantage of the significant opportunities that are expected to emerge across the sector in the coming years."
For CPPIB, senior managing director and global head of private investments Mark Jenkins comments: "As an asset class, agriculture is an excellent fit for a long-term investor like CPPIB, and we are excited about the opportunity to acquire a significant stake in Glencore Agri, a leading agricultural business. Glencore Agri complements our existing portfolio of agriculture assets, bringing global exposure, scale and diversification. In addition, Glencore Agri's experienced management team has a proven track record of growth, and combined with a successful business model, we see this as a compelling opportunity that aligns with CPPIB's long-term investment horizon.”
Glencore Agri’s global network of origination, logistics and processing assets includes over 200 storage facilities, 31 processing facilities and 23 ports in strategic locations around the world. It is present key export regions and for trading major agricultural commodities such as grain, oilseed products, rice, sugar, pulses and cotton. The division reported earnings of $524 million on revenues of $23.15 billion in the year ended December 31st 2015, compared to $992m and $25.82bn in 2014.