Canada Pension Plan Investment Board (CPPIB) has agreed to acquire a 40% equity interest in Glencore’s (LSE: GLEN) unit Glencore Agri, for US$2.5 billion in cash.
The deal values 100% of the equity in Glencore Agri at US$6.25 billion. As of December 31, 2015, the business had long-term debt of US$0.6 billion and working capital of US$3 billion which it intends to finance with short term debt on closing, Glewncore said.
“We are pleased to be partnering with CPPIB as we embark on the next stage of the development of Glencore Agri,” said Glencore CEO 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 have a proven track record in the sector and share our vision for the future growth of the business through value-creating organic and inorganic growth opportunities for the benefit of all stakeholders. We welcome them aboard and look forward to continuing our good relationship as we work together.”
The deal is subject to customary regulatory approvals and closing conditions and is expected to close during the second half of 2016. The sale proceeds will be used by Glencore to reduce net indebtedness.
Glencore Agri is a differentiated and vertically-integrated business focused on the global agricultural products value chain. Built around a network of high-quality origination and logistics assets, comprising over 200 storage facilities, 31 processing facilities and 23 ports in strategic locations around the world, Glencore Agri is well-positioned in key export regions and in the trade of major agricultural commodities including grains, oilseeds products, rice, sugar, pulses and cotton. In the year to 31 December 2015, Glencore Agri reported earnings before interest and tax of US$524 million, and at 31 December 2015 had gross assets of US$10,187 million.
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. As well as customary exit provisions, including a right of first refusal, each of Glencore and CPPIB may call for an initial public offering of Glencore Agri after eight years from the date of closing.
“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,” said Chris Mahoney, CEO of Glencore Agri. “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.”
“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,” said Mark Jenkins, Senior Managing Director and Global Head of Private Investments at CPPIB. “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.
Barclays, Citi and Credit Suisse acted as joint financial advisers to Glencore. Linklaters LLP provided legal advice to Glencore.
Glencore plc is one of the world’s largest global diversified natural resource companies and a major producer and marketer of more than 90 commodities. The Group’s operations comprise around 150 mining and metallurgical sites, oil production assets and agricultural facilities. The company was formerly known as Glencore Xstrata plc and changed its name to Glencore plc in May 2014. Glencore plc was founded in 1974 and is headquartered in Baar, Switzerland.
With a strong footprint in both established and emerging regions for natural resources, Glencore’s industrial and marketing activities are supported by a global network of more than 90 offices located in over 50 countries. Glencore’s customers are industrial consumers, such as those in the automotive, steel, power generation, oil and food processing.
Canada Pension Plan Investment Board (CPPIB) is a professional investment management organization that invests the funds not needed by the Canada Pension Plan (CPP) to pay current benefits on behalf of 19 million contributors and beneficiaries. In order to build a diversified portfolio of CPP assets, CPPIB invests in public equities, private equities, real estate, infrastructure and fixed income instruments. Headquartered in Toronto, with offices in Hong Kong, London, Luxembourg, Mumbai, New York City and São Paulo, CPPIB is governed and managed independently of the Canada Pension Plan and at arm’s length from governments. At December 31, 2015, the CPP Fund totaled $282.6 billion.