BAAR, SWITZERLAND — Glencore plc announced on April 6 that the Canada Pension Plan Investment Board (CPPIB), Canada’s largest pension fund, plans to purchase a 40% equity interest in Glencore Agri for $2.5 billion cash.
Glencore first announced it was seeking investors in its agriculture unit in September 2015, as part of a plan to reduce its $30 billion debt by $10 billion. In December 2015, the company said it had already reduced debt by $8.7 billion and had revised its debt reduction target to $13 billion.
The deal is expected to close in the second half of the year.
“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,” said Ivan Glasenberg, Glencore’s chief executive officer (CEO). “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."
Upon closing, Glencore Agri will be governed by its own board of directors. CPPIB will be able to appoint two directors to the board of Glencore Agri alongside two Glencore-appointed directors and CEO Chris Mahoney.
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.
On March 1, Glencore reported that its Agricultural products business segment’s adjusted EBITDA for the year ending Dec. 31, 2015, was $734 million, down 39% compared to $1.2 billion in the same period of last year, the latter benefiting from an exceptionally strong Canadian harvest. The company also reported on Feb. 11 that its total agriculture production for 2015 was 11.5 million tonnes, up 6.4% from 10.8 million tonnes in the same period of last year.
For the pension fund, the deal is an opportunity to diversify its holdings and protect against volatility. CPPIB oversees assets of C$282.6 billion ($214.9 billion) for 19 million contributors and beneficiaries. Based in Toronto, Ontario, Canada, the fund has offices in Hong Kong, London, Luxembourg, Mumbai, New York City and Sao Paulo.
The fund invests in public equities, private equities, real estate, infrastructure and fixed income instruments. It first invested in agriculture in 2012, including farmland in Canada, the U.S., Australia, New Zealand and Brazil. According to its latest annual report, the pension fund’s farmland assets are valued at C$787 million.
"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.
Glencore Agri is a differentiated and vertically-integrated business focused on the global agricultural products value chain, Glencore said. Built around a network of high-quality origination and logistics assets, comprising over 200 storage facilities, 31 processing facilities and 23 ports, 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.
Barclays, Citi and Credit Suisse acted as joint financial advisers to Glencore. Linklaters LLP provided legal advice to Glencore.