Viterra’s announcement late on Friday that it has become the subject of possible takeover bids has prompted investor interest and could result in political controversy in Canada this week.
An acquisition of the company, which is Canada’s largest grain handling and marketing firm and has a market capitalization of about US$5 billion, would be the latest in a series of realignments following the government’s decision to end a 76-year-old monopoly on export sales of Canadian wheat and barley later this year.
Because Canada is the world’s third-largest exporter of wheat, the market opening has prompted efforts by commodity trading and agricultural companies around the world to get a piece of the market.
In its brief statement, Viterra offered no information about which “third parties” had expressed interest in the company or the nature of their offers.
Glencore International, a major commodities trading firm based in Switzerland, features prominently in the speculation about would-be buyers, despite the fact that it is also trying to acquire the remaining shares it does not own in Xstrata, the mining company, in a deal worth US$41 billion. Spokesmen for both Glencore and Viterra declined to comment on Sunday.
Regardless of the bidder, Viterra, which was formed from farmers’ cooperatives, offers an opening for any company hoping to exploit the end of the Canadian Wheat Board’s monopoly on export sales from Canada.
Viterra already handles about 45 percent of the grain produced in Western Canada, the main grain growing region and some analysts have said the changes to the wheat board means that it will probably acquire most of the 30 percent of the business now handled by small independents.
In preparation for the end of the wheat board monopoly on Aug. 1, Viterra has moved into marketing and recently said that the changes should improve its pretax profits by 7 percent or US$40 million to US$50 million, a year by 2014.
Viterra is also the largest grain handler in South Australia, another major center of wheat production, and has operations in the US.
The changes to the wheat board, which were introduced by the Canada’s Conservative government, have deeply divided Western Canada’s farmers.
By pooling farmers’ production, the board’s monopoly system allowed it to mitigate swings in prices, protecting farmers during periods of low prices.
However, critics say that a free market should enable farmers to get higher prices during good times.
The Federal Court of Canada ruled in December last year that the government had broken its own laws by not first obtaining the consent of farmers before ending the wheat board’s monopoly. A non-binding vote held by the board found that 62 percent of wheat farmers favored the monopoly system and that 51 percent, of barley growers also backed it.
However, the court did not reverse the government’s decision and its ruling has been appealed by the government while some farmers are still trying to have the changes suspended.
Viterra is based in Saskatchewan, a province that was recently at the center of another major foreign takeover debate. In late 2010, the federal government blocked a US$38.6 billion purchase of Potash Corp of Saskatchewan, a major fertilizer producer, by BHP Billiton, a large Australian mining company.
After the Potash decision, the government promised to issue new guidelines for the approval of takeovers of Canadian companies by foreign investors, but it has yet to release them.
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