CHICAGO (Reuters) - Global grain trader Bunge Ltd’s cost cutting and restructuring plans could buy it time in the face of a takeover bid from a larger rival as it struggles to stay independent during a slump in the commodities market, analysts said.
The moves seek to reduce overhead costs by $250 million by the end of 2019. They were designed to withstand the three-year downturn in commodities that has crushed profits at companies that buy, sell and process grains and oilseeds.
“We believe that management wanted to assure investors that the company does not need to be acquired, that it can deliver these savings that might have been synergies,” said Ann Duignan, analyst at J.P. Morgan. “Also, it can deliver them on its own and increase returns to shareholders without needing to be acquired. I believe that this plan buys management time.”
Bunge, the smallest of the listed global grains traders, rebuffed a takeover bid from Glencore PLC in May. In its restructuring announcement, seen as a defense against both Glencore and activist investor Carlson Capital, Bunge also warned that its second quarter profit would fall below the low end of a range of analyst estimates.
Multi-strategy hedge fund Carlson Capital has occasionally taken activist positions. It owned 1.75 million Bunge shares as of the last quarter, according to securities filings, making it the 15th largest shareholder with a stake worth 1.24 percent of the company.
Certain segments of the grain industry were ripe for consolidation, Bunge Chief Executive Soren Schroder said.
“The way we have gone about this over the last couple of years and continue to pursue is really by forming regional alliances with companies that can see the benefit of joining forces,” he said on a conference call with analysts. “I think there are more opportunities like that that we can explore over time.”
Schroder reiterated that Bunge wanted to be a leader in such alliances and joint ventures. He declined to comment further on industry consolidation.
Glencore declined to comment on the possibility of a fresh bid for Bunge.
Bunge’s shares rose 89 cents, or 1.3 percent, to close at $79.58 on Thursday. During the session, they hit their highest since June 9.
“They have announced this cost cutting in response to weak industry conditions,” said Chris Johnson, lead agribusiness credit analyst at Standard & Poor‘s. “From our point of view, this announcement is communicating to shareholders that they are still within guidance (on earnings) and, less directly, signaling they can still operate as a standalone entity.”
Additional reporting by Michael Hirtzer in Chicago, Lauren Hirsch and Michael Flaherty in New York and Zandi Shabalala in London; editing by David Gregorio