ADM Purchase of Bunge Would Face Regulatory Hurdles

The Wall Street Journal has reported that Archer-Daniels Midland (ADM) made an offer to acquire Bunge (BG) although terms of the proposal remain undisclosed. This marks the second potential acquisition offer in the last year, following Glencore’s informal bid that was rebuffed by Bunge management last May. Bunge shares rose over 11% to $77.55 at the time of writing. We note that Bunge management would not even acknowledge Glencore’s offer, and neither ADM nor Bunge has released a statement on the news. As such, we will maintain our current stand-alone fair value estimates for both Bunge ($70 per share) and ADM ($43 per share) until either company comments on the potential deal.

Enterprise value/EBITDA multiples of comparable transactions have averaged a 10.9 times multiple, based on PitchBook data. When we apply this multiple to our Bunge 2018 forecast EBITDA of $1.53 billion, we value Bunge at $84 per share. More optimistically, a 12.9 times multiple, the largest multiple of the comparable transactions, would value Bunge at $104 per share.

We think the combined ADM-Bunge would benefit from economies of scale. Currently, ADM is a larger player in North America, while Bunge’s strength is South America. A combined company would likely be the dominant grain merchandiser and processor of both continents. However, we see potential regulatory concerns for a merger given the high market share in both grain merchandising and oilseeds processing that a combined ADM and Bunge would have in both the United States and Brazil. If a transaction were to be agreed upon by both companies’ management teams and boards, we would expect mandated divestitures to clear regulatory approval. Accordingly, even if firm merger details are disclosed, we would assign a 50% chance that any proposed acquisition would close as planned.

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