Bunge isn’t a household name, but its products are ubiquitous in millions of homes worldwide.
Take, for example, vegetable oils. Bunge produces more bottled salad and cooking oils than any company in the world. That isn’t obvious to consumers, because Bunge mainly sells its commodities to familiar brand-name packagers, including Frito-Lay, General Mills, Kellogg Co. and Nestlé.
Already the No. 1 soybean producer in the Americas and a regional or international force in everything from animal feed and fertilizers to cake mixes and pie fillings, Bunge added to its heft last year with its acquisition of French agribusiness Cereol. That made Bunge, with 24,000 employees in 28 countries, the world’s largest oilseed processor and gave it a significant Eastern European presence, complementing its longtime emerging-markets operations in Latin America.
“We have gone from having 8 million tons of oilseed-processing capacity in 1997 to 32 million, including Cereol,” Bunge CEO Alberto Weisser says of one of the two most important transactions in the company’s recent history. The other was Bunge’s August 2001 IPO, through which it raised $278 million by floating 23 percent of its shares on the New York Stock Exchange.
By snaring Cereol -- the biggest of seven acquisitions completed since 1999 -- Bunge raised its profile among investors and the media. In October it bought 55 percent of Cereol from Italian conglomerate Edison for E449.2 million ($436.6 million) in cash. Then, in a tender offer, Bunge took its stake up to 97.38 percent by early December, surpassing the 95 percent threshold that under French law gives it the right to buy up the rest.
Bunge -- pronounced “bun-ghee” -- takes its name from Johann Peter Gottlieb Bunge, a Dutch grain trader who co-founded the company in 1818; descendants of the founding families were still running it in the early 1990s. Though ownership was stable, Bunge’s headquarters bounced around -- from Amsterdam to Rotterdam, Antwerp, Buenos Aires, São Paulo and, since 1999, White Plains, New York. Bunge made its last move, after 30 years in the Brazilian business capital, to be closer to the hub of international trade and finance.
“We probably should have moved decades ago,” says Weisser, a 46-year-old Brazilian native who joined Bunge in 1993 as chief financial officer and became CEO in 1999. He is a former executive of German petrochemicals giant BASF, another company that supplies products to better-known brands.
Bunge has three main divisions: agribusiness, which includes soybean production; food products, responsible for shortenings, edible oils, mayonnaise and baked goods; and fertilizers. Agribusiness accounted for 78 percent of Bunge’s $9.4 billion in sales through the first nine months of 2002. Revenues increased 13 percent from 2001, while net income rose 94 percent, to $167 million.
Despite its acquisition spree, Bunge is about half the size of U.S. agribusiness colossus Archer-Daniels-Midland Co. Bunge’s stock price, at about $23 in mid-December, is up $7 since the IPO, but its market capitalization of $2 billion is still only one quarter of ADM’s.
Deutsche Bank Securities analyst Eric Katzman says Bunge is undervalued. Although he warns that “this is a commodity-oriented global processor with above-average risk,” he reiterated his buy rating and $33 price target after Bunge in mid-December raised its fourth-quarter earnings estimate to 81 to 91 cents a share, from 55 to 60 cents.
Weisser talked about the Cereol deal and Bunge’s next steps in a recent interview with Institutional Investor Staff Writer Justin Dini.
Institutional Investor: What made Cereol attractive to you?
Weisser: In the agribusiness industry you have to grow, you have to have low cost, and you have to be efficient, and Cereol helps us do all three. Now we are pumping through more volume, with marginally more fixed cost. The strategic fit is excellent. And it was an attractive valuation, at something between five and six times earnings before interest, taxes, depreciation and amortization. In contrast, Archer-Daniels-Midland is trading at 8 times ebitda.
How difficult is it to integrate an acquisition of this size?
We were very careful about it and spent a lot of time planning, thinking about the culture, people and organization, so that once the closing was done, we hit the ground running. The beauty of this transaction is that it’s very complementary. Our companies for many years have had a joint venture in Spain, so they know how we are, we know how they are, and the cultures are very similar. There are only two places where the companies have plants close to each other -- Quebec and Illinois -- and they serve different markets. As a result, people were immediately relaxed about the merger.
Will you be doing more deals?
We are a company that is growing -- but a very careful one. For this year the main focus is integrating Cereol. Any acquisitions we’d consider would not be large.
Did Bunge go public specifically to become a more aggressive acquirer?
In 1990 we decided we were entering a new phase. The end of the cold war opened new markets, and our business became so global that it was very important to change the strategy and to have access to capital. The shareholders, and the professional management that was brought in in 1992, felt that to grow we really had to have access to new kinds of financing, one of the most important being the equity market. So we had been preparing the company for sale to the public for a long period of time.
How easy was the transition from family ownership?
It was relatively easy for us. The board was aligned for the purpose. You have to remember that the founding families were in the fifth generation, so there were a number of smaller shareholders, and all the shareholders had an interest in obtaining liquidity and diversifying their portfolios. As early as 1994, still as a private company, we had an independent, active board. In the end, the conversion did not seem too complicated.
Have you changed the way you operate as CEO, especially in view of the new level of scrutiny of public companies?
I do not see a big difference, because we have extremely rigid governance and controls. As an ex-CFO, I’m proud of that. In fact, I see going public as positive, because I always felt a little bit uncomfortable not telling the complete story to our own employees. It is very important for them to know exactly what we are doing, and this is now much easier to communicate. Obviously, we also spend more time talking to analysts and investors. But I don’t think it has been too much of a burden.
What is driving your stock price?
People realize that we are in an interesting industry, and Bunge has a very strong position. In the past you only had one company out there -- ADM -- and now you have two, which raises the level of interest. Also, it is a global industry delivering products that everybody consumes, regardless of whether you might have a crisis in some part of the world. I would say it is a defensive stock.
Do you think Bunge is well enough known in the investment community?
We see from month to month that we are becoming more noticed. Our family shareholders for the most part did not sell their shares, or sold very little, because they know the industry and know it will be evolving. Eventually, they will be selling, so it is only a matter of time before more people become aware of Bunge. And we hope to make some acquisitions where we use the shares.
How exposed are you to political and economic turmoil in South America?
The beauty of Bunge is that we have known that region for over 100 years. Both Argentina and Brazil are going through difficult periods, but we are doing very well. First of all, that region is probably the most competitive in the world in agribusiness. Another factor is the strong export market. What we are doing is positive for those economies, so the governments and the people like us.
We do worry about the environment there. Look, I’m Brazilian. I think about what is happening to the people there, but I’m an optimist about the new government and its ability to maintain fiscal discipline.
