March 25, 2012 6:10 PM
Dealmaker of the Week: Kenneth Klassen of Bennett Jones
Posted by Tom Huddleston Jr.
Glencore International, the Swiss company that is the world’s largest commodities trader.
Glencore agreed Tuesday to purchase Viterra, Canada’s largest grain-handler, in a $6.2 billion deal that includes the related sale Viterra assets worth a combined $2.6 billion to Canadian agricultural companies Agrium and Richardson International.
In a deal that pulled in ten law firms all told, Glencore agreed to pay $16.24 per share in cash to acquire Viterra. The purchase price represents a 48 percent premium over the value of Viterra’s on March 8, the day before Viterra announced it had received interest from potential bidders. Glencore also agreed to sell Viterra’s agri-products business and a 34 percent interest in a Viterra fertilizer unit for $1.8 billion to Agrium. Richardson, meanwhile, has agreed to pay $805 million in exchange for 23 percent of Viterra’s Canadian grain-handling assets.
The deal requires the blessing of regulators approval and a two-thirds vote of approval by Viterra shareholders. That vote is scheduled for a shareholder meeting to be held in May.
THE BIG PICTURE
The New York Times notes that the deals with Agrium and Richardson are most likely Glencore’s attempt to placate Canada’s foreign investment regulators, who will consider whether the Swiss company’s purchase of Viterra offers a net benefit to the country under the Investment Canada Act. Klassen, however, downplays that theory. “The motivation is to sell the assets you don’t want,” he says.
There have been indications that regulators may not be quick to embrace the deal, with Saskatchewan premier Brad Wall voicing trepidation over the effect Glencore’s purchase of Regina, Canadaâ€“based Viterra will have on competition in the region’s agricultural sector. Should the deal collapse for regulatory reasons, terms of the agreement call for Glencore to pay a reverse breakup fee of $50 million.
If, on the other hand, the deal is approved by regulators, as well as shareholders, it would increase Glencore’s grain-production capacity in Australia and Canada, where Viterra has substantial holdings.
Friday’s announcement that the companies had struck a deal came after Viterra said earlier this month it as entertaining potential offers following a government vote to end the Canadian Wheat Board’s monopoly on the sales of wheat and barley grown in Western Canada. Viterra has said the lifting of the monopolyâ€”which, though facing legal opposition initiated by some Canadian farmers, is set to take effect in Augustâ€”could boost its annual earnings by some $40 million to $50 million.
Klassen says he brought Glencore to Bennett Jones as a client when he joined the firm in 2010. His relationship with the Swiss company began in 2007, when he was a partner with Davies Ward Phillips Vineberg and was asked by a Clifford Chance team for some quick advice about a Canada-specific aspect of Glencore’s $150 million loan facility to a subsidiary of Katanga Mining (a company in which Glencore would later come to own the majority stake). What started as a small favor, Klassen says, expanded into a larger role on that deal and, ultimately, an enduring relationship with Glencore.
Klassen has since advised Glencore on such corporate matters as the company’s 2008 purchase of a majority stake in Katanga, as well as partnerships with mining outfits such as PolyMet Mining and Devonian. Last year, he worked on the Glencore’s failed $475 million acquisition of Peruvian copper mines from CST Resources.
After Viterra announced earlier this month that various bidders has shown interest in acquiring the grain-handler, The Wall Street Journal identified Glencore and Cargill were two of the leading contenders. Klassen says the secrecy shrouding the bidding process kept him from known who his client’s rivals were. “I always describe these auction processes . . . as a little bit like going to Disneyland blindfolded, with ear plugs on, spending time there and then leaving and having people ask you to describe it,” he jokes.
While he decines to disclose when exactly the firm began working on Glencore’s bid, he says his work on the deal has consumed much of his time for several months. “This is something I’ve been eating, sleeping, and breathing since at least the start of the year,” he says. (During the same stretch, he steered another dealâ€”Xstrata’s $500 million purchase of coal assets in western Canadaâ€”to closing in late-February.)
Among the Glencore deal’s more complicated components were the asset sales to Agrium and Richardson. Klassen He says that such “sidecar” deals, in which certain assets of a company are sold off while that company is being acquiredâ€”are fairly rare. In Canada, he says, the only sidecar deal comparable to Glencore’s was Barrick Gold’s $9.2 billion acquisition of Placer Dome, in 2005, which included a sidecar sale of some of the target’s mining assets to Goldcorp for $1.35 billion. However, Klassen says this deal far exceeds that one in terms of complexity.
“Our structure was quite a bit more complex . . . because there are two buyers and we’re dealing with [moving assets and moving liabilities],” he says, referring to the dual sales of multiple, operating business units to Agrium and Richardson.
Says Klassen: “I think, in Canada, this is the first time anyone has ever done a public MA transaction with two sidecars.”
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