Agrium Inc. (AGU) announced that it has penned a deal with Glencore International plc. to buy the majority of Viterra Inc.’s agri-products business for $1.15 billion in addition to working capital. Agrium estimates the amount of working capital required for the business to be around $0.5 billion.
Agrium’s acquisition of Viterra’s agri-products is subject to the completion of Glencore’s acquisition of Viterra. Glencore recently announced that it will be purchasing Viterra for $16.25 a share, or about $6.2 billion.
As per the agreement, Agrium will buy 90% of Viterra’s Canadian retail facilities, all of its Australian retail facilities, as well as a certain percentage in a nitrogen facility located in Medicine Hat, Alberta. According to Agrium, the acquisition will fit in well with the company’s portfolio and will enable its expansion in the retail business.
Agrium is optimistic about achieving EBITDA worth $1 billion in its retail business by 2015 after the closure of the acquisition. The acquisition is expected to provide synergies immediately after its completion and is expected to boost Agrium’s wholesale operations as well.
Agrium thus follows a focused strategy to grow along the value chain through a combination of acquisitions and organic development. During the fourth quarter of 2011, sales in the retail segment were up 38% to $1.8 billion. For the full year 2011, sales were $10.3 billion, up 48% year over year.
The large increase in sales was primarily due to the accretive revenues and earnings of the Landmark retail operations that the company acquired as part of its December 2010 acquisition of AWB Limited. The company sold its stake in AWB Limited’s commodity Management Business to Cargill, in May 2011.
Agrium faces stiff competition from CF Industries Holdings Inc. (CF) and Potash Corp. of Saskatchewan Inc. (POT). Currently, we have a Neutral recommendation on Agrium. The stock currently maintains a short-term Zacks #3 Rank (Hold).
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