Evan Vitale Consulting: Glencore Agrees to Sell Minority Stake in Agriculture Business

LONDON — The Swiss commodities and mining company Glencore said on Wednesday that it had agreed to sell a 40 percent stake in its agriculture business to Canada Pension Plan Investment Board for $2.5 billion in cash.

The deal is the latest move by Glencore to reduce its debt by selling assets. The company’s stock has been under pressure in recent months as analysts and investors have expressed concern about the company’s debt load and about weakness in commodities pricing.

Glencore said in December that it was considering the sale of a minority stake in the agriculture business, known as Glencore Agri, as well as possibly seeking an initial public offering.

Representatives of the Canada Pension Plan Investment Board “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,” Ivan Glasenberg, the Glencore chief executive, said in a news release. “We welcome them aboard and look forward to continuing our good relationship as we work together.”

The agreement values the agriculture business at $6.25 billion. It is subject to regulatory approval and is expected to close in the second half of this year.

Glencore, based in Baar, Switzerland, buys and sells commodities, like coal and copper, as part of its trading arm. It also mines those commodities.

In March 2012, a consortium of investors led by Glencore acquired Viterra, then the largest Canadian grain handler, for $6.2 billion, in a deal that greatly expanded the Swiss company’s presence in agriculture.

Graphic | How Glencore Is Performing

Glencore Agri’s operations include more than 200 storage facilities, 31 processing plants and 23 ports worldwide. In 2015, the agriculture business reported earnings before interest and tax of $524 million, down 47 percent from a year earlier.

If the sale is completed, Glencore Agri will have its own board of directors, with two directors appointed by the Canadian pension fund.

The sale would be subject to a four-year lockup period, with an exception that would allow Glencore to sell up to an additional 20 percent stake in the business.

Glencore was hit particularly hard in 2015 as a sell-off in commodities and concerns about a slowdown in China’s economy weighed on its results. The company reported a $5 billion loss for the year, compared with a profit of $2.3 billion in 2014.

It had already undertaken $1.6 billion in asset sales since it announced in September that it planned to sell assets to reduce its debt.

Last month, the company said it was aiming for asset sales of as much as $4 billion to $5 billion this year.

Glencore, which is also trying to cut costs, is seeking to reduce its debt to about $15 billion to $19 billion by the end of next year. The company, which went public in 2011, had $25.9 billion in debt as of Dec. 31.

Shares of Glencore rose slightly in London on Wednesday morning after the announcement.

As part of its efforts to reduce debt, Glencore eliminated its dividend and sold $2.5 billion in shares in September.

Glencore was advised by Barclays, Citigroup and Credit Suisse and the law firm Linklaters.

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