Glencore Hires Banks to Sell Grains Unit
Glencore Plc has reportedly hired Citigroup Inc. and Credit Suisse Group AG to facilitate the sale of a minority stake in its grains unit that could place a value of as much as $12 billion on the whole unit.
Talks are currently being conducted with about a dozen sovereign wealth funds and Asian trading houses, and expectations are that the stake will be sold to a group of buyers rather than a single party according to the same Bloomberg source.
The sale of the stake is a part of a debt-cutting plan announced in early September by Glencore chief executive, Ivan Glasenberg that involves selling $2.5 billion in new stock, the sale of assets, suspending the dividend, and cuts to spending for a total targeted savings of $10 billion.
Glencore became a global player in the grains sector when it bought Canadian grain handler, Viterra, becoming one of the world’s top two traders of wheat, however the company still lacks any presence in the U.S., and the company believes that a group of investors could inject the necessary funding into its agricultural unit for expansion.
Glencore estimates the value of its ag unit to be about eight to 11 times earnings before interest, tax, depreciation, and amortization (EBITDA), generating $1.2 billion last year and $332 million in the first half of 2015.
Valuations in the space have been boosted in recent years due in no small part to a flurry of major deals, including Mitsubishi buying a 20% stake in Olam International last month for approximately $1 billion, G3 Global Grain Group – a joint venture between Bunge Ltd. and Saudi Agricultural and Livestock Investment Co. (SALIC) -- buying a majority stake in the former Canadian Wheat Board for C$250 million, and Marubeni, one of Asia’s top grain trading houses, buying U.S. grain merchant, Gavilon Holdings LLC in 2013 for $2.7 billion.