Canada's Viterra Inc. attracted lavish takeover attention, to no one's surprise. The company is one of North America's premier grain handlers and marketers. It is a huge supplier of fertilizer, seed and other agri-products to Canadian farmers. It owns great chunks of the South Australian grain-handling network. Between Canada and Australia, Viterra is a key player in two of the world's most important bread baskets.
In short, it was a global champion in the making. Not any more. Early this week, Viterra was blown away like a tumbleweed by Glencore International of Switzerland, the world's biggest and most aggressive commodities trader. Glencore, which is paying $6.1-billion for its prize, is keeping most of Viterra's grain elevators, ports and other bits of infrastructure, plus virtually all of the Australian goodies. The rest of the company, such as the fertilizer business, is to be divvied up between Agrium and Richardson International.
What a shame. Canada needs global corporate champions. It has, perhaps, three: Bombardier, the world's third-largest aerospace company, Barrick, the top gold player, and Potash Corp. of Saskatchewan. Potash Corp., the global fertilizer leader, would have disappeared too had the federal government not blocked its sale to Australian mining colossus BHP Billiton in 2010.
There is no sense that the feds will deprive Glencore of Viterra. Viterra does not have commanding control of a single, and globally essential, resource, as Potash Corp. does. Viterra's sale has not triggered a political backlash, as Potash Corp.'s proposed flight did. The agreements with Agrium and Richardson go some way to "Canadianize" the bid, diluting the image of Viterra being served like dinner to a voracious foreign predator.
The deal will not be killed by Investment Canada, nor should it. Viterra is a willing seller, and that's the problem. It and its investors are happy to sell too quickly in yet another case of greed-driven, short-term Canadian thinking.
To be sure, it seems that Glencore's $16.25 a share bid, which values Viterra at about 10 times EBITDA (earnings before interest, taxes, depreciation and amortization) is not outrageously mean. But that's not the point.
The point is that Viterra is irreplaceable, certainly within our lifetime. Glencore is nabbing 63 grain elevators and seven port terminals in Canada that could not magically be built overnight should another group of investors decide to clone Viterra.
This industry has massive barriers to entry and that's why Glencore, led by the ever-savvy Ivan Glasenberg, pounced. For him, it was a once in a lifetime opportunity (and pocket change compared to Glencore's $45-billion market value). If he didn't nail Viterra, he knew it would have disappeared into the maw of Archer-Daniel-Midlands, Cargill, Bunge, Louis Dreyfus or any of the other agribusiness heavyweights who know that food isn't going out of style and that feeding another 2 billion people by 2050 just might translate into compelling growth story.
According to Ken Smith , associate dean of executive programs at Ontario's University of Guelph, which is launching an agricultural MBA program, Canadians are notorious take-the-money-and-run artists. He notes that in the last decade, Canada was a net seller (value of sales less value of acquisitions) in every industry of note, except for financial services, which is protected by ownership restrictions.
In base metal mining, the one area where Canada should have global champions, we have none. Inco is part of Brazil's Vale; Falconbridge is part of Xstrata, which is merging with Glencore to form one of the world's top five mining groups. Canada's mining future is largely determined in Melbourne, London, Brasilia and Zug, Switzerland. Guess where Canada's ambitious mining engineers and managers go to find work? Not Canada.
Viterra did make some progress in building its domestic and overseas presence. It had bought Winnipeg's Agricore for $1.8-billion and Australia's ABB Grain for $1.5-billion. But when the federal government decided to strip the Canadian Wheat Board of its monopoly on export grain sales (to become effective in August), Viterra should have known that a) its own market share and profits would be set to soar, b) it would, as a result, become a takeover target and, c) it would have to do something imaginative to exploit its strategic status in a strategic industry if it wanted to remain independent.
Its strategy was to sell an essentially irreplaceable business without a fuss.
And so Canada has moved with alacrity to squander another opportunity to build a global business. Mr. Glasenberg spotted this opportunity and you can't blame him for seizing the initiative. Viterra CEO Mayo Schmidt can be blamed for extending Corporate Canada's endless, depressing cycle of handing the country's future growth and decision-making to foreign names.
If there is one industry that had a bright future, it was global agriculture and Canada had all the components: Land, water, fertilizer, technology, schools, expertise, infrastructure, agri-business companies. What it lacked was ambition.
Viterra could have been the foundation of a Canadian Glencore or Cargill. Now it's a piece of someone else's global vision.
Eric Reguly