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Glencore seen paying up to US$6 billion in possible Bunge deal

Glencore would be likely to keep Baa2 rating, Moody's says

(Dave Bedard photo)

London | Reuters –– Miner and trader Glencore may pay up to US$6 billion in cash in a possible tie-up with U.S. grains trader Bunge based on current valuations, Moody’s ratings agency said on Friday, but said it did not expect an outright acquisition.

Glencore said this week it had made an informal approach to discuss “a possible consensual business combination,” but offered few details about what that would involve. Bunge said it was not in talks with Glencore.

Glencore CEO Ivan Glasenberg said his company wanted to expand its agriculture business via Glencore Agriculture, which is a partnership between the London-listed mining company and two Canadian funds.

“Should the transaction happen, we think the most likely combination would be between Glencore Agriculture Limited and Bunge, with Glencore maintaining a sizeable stake of up to 50 per cent in the combined entity,” Elena Nadtotchi, vice-president and lead analyst for Glencore at Moody’s, said in a statement.

“We estimate this could require a cash contribution of up to $6 billion from Glencore, assuming current valuations,” she said, adding Glencore would still remain within Moody’s guidance for the agency’s investment grade Baa2 rating.

A combination involving Glencore Agriculture would be positive for Glencore’s business profile, Nadtotchi said.

But she said an outright acquisition of Bunge by Glencore or a deal that would significantly dilute Glencore’s stake in the combined group was unlikely.

“A scenario where a combination happens at the level of (Glencore Agriculture) and Glencore maintains a substantial stake of up to 50 per cent in the enlarged group is more in line with Glencore’s strategy and previous deals,” she said.

— Barbara Lewis is Reuters’ senior EU energy and environment correspondent, based in London.

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