Glencore said it would sell 40 percent of its Agricultural Products business to a wholly-owned subsidiary of the Canada Pension Plan Investment Board (CPPIB).
“The proceeds from the transaction will be used by Glencore to reduce net indebtedness,” said the company, which is undergoing a dramatic restructuring to trim its towering debt.
The deal announced on Wednesday, which is subject to regulatory approvals and is expected to close during the second half of the year, values Glencore's entire Agricultural Products business at $6.25 billion.
It also recognises $600 million in debt and $3.0 billion in working capital, which Glencore said it “intends to finance with short term debt on closing.”
“We are pleased to be partnering with CPPIB as we embark on the next stage of the development of Glencore Agri,” Glencore chief Ivan Glasenberg said in the statement.
The deal is only the latest in a long line of shifts Glencore has announced in recent months to cut back its debt-load, which at the end of 2015 stood at nearly $26 billion, including scrapping its dividend, suspending production at a number of mines, and selling off assets.
Mark Jenkins, the senior managing director at CPPIB also hailed the deal.
“As an asset class, agriculture is an excellent fit for a long-term investor like CPPIB, and we are excited about the opportunity to acquire a significant stake in Glencore Agri,” he said.
At arm's length from the Canadian government, the CPPIB invests the funds not needed by the Canada Pension Plan (CPP) to pay current benefits to 19 million pension contributors, placing the funds in equities, real estate, infrastructure, and fixed income instruments.
At the end of 2015, the CPP Fund totalled nearly $283 billion.
Glencore Agri meanwhile trades major agricultural commodities like grains, oilseeds products, rice, sugar and cotton, and counts more than 200 storage facilities, 31 processing facilities, and 23 ports worldwide.
When the deal closes, Glencore Agri will continue to be run by current chief Chris Mahoney and will be governed by its own board of directors, including two appointed by CPPIB and two appointed by Glencore.
In addition, the two sides have agreed to an initial four-year lock-up period during which Glencore can sell CPPIB up to a further 20 percent stake in the agri-business, and to a provision allowing either side to call for the business to go public after eight years.
FARMING
Swiss company Glencore in billon-dollar deal
Swiss commodities giant Glencore announced on Wednesday it was selling nearly half of its vast agriculture business to a Canadian pension fund for $2.5 billion (2.2 billion euros), in cash.
For members
MONEY
Is it better for consumers in Switzerland if the Swiss franc is strong or weak?
Although Switzerland’s currency has weakened slightly against the euro in recent weeks, it remains strong. Is it good or bad news for consumers?
Generally speaking, when a country’s currency is strong — as the franc is right now against both the euro and dollar — consumers benefit on several fronts.
The main reason is that they will get more bang out of their francs, especially in these situations:
Imported goods
Since the exchange rates between the Swiss and foreign currencies are in franc’s favour, any merchandise that comes from abroad will, in principle, be cheaper.
If you go shopping in a supermarket and find, for instance, that the price of Swiss eggs hasn’t budged (and certainly not downward), you will have more luck with eggs imported from Germany or France.
However, while you may see some savings when purchasing foreign goods, this may not be a huge amount.
The reason, according to Moneyland consumer platform, is that “Swiss importers are not obligated to pass on extra profits earned on exchange rates to customers – and many of them don’t reduce prices at all.”
Cross-border ‘shopping tourism’
Most products are cheaper — and sometimes by much — in other countries.
Even though inflation rates are higher abroad than they are in Switzerland, as is the Value-Added Tax, the franc’s power means it is still worth your while to buy your groceries in France, Italy, Germany, and other eurozone countries as well.
That, however, doesn’t mean that all products are cheaper abroad – it all depends on the specific goods and services in question.
For example, in general, electronics have lower price tags in Switzerland than in the EU countries.
READ ALSO: The one product that is cheaper in Switzerland
Foreign vacations
With the franc stronger than the euro and US dollar, you can definitely benefit from travel abroad.
Whether just for a long weekend or full-scale holidays, you will be able to get more out of your money in many foreign countries, at least in terms of accommodations and food, than you would for the same amount of money in Switzerland.
Keep in mind, however, that the strong franc will not compensate for the cost of getting there and back, as the prices for airplane tickets, train travel, and petrol remain high.
All that is good, but is there a flipside as well?
The biggest ‘negative’ of the strong franc is that export-based companies suffer, because the goods they sell are too expensive abroad.
You may argue that this affects economy as a whole rather than individual consumers, and you’d be right — but only up to a point.
That’s because whatever happens in the economy at large will eventually trickle down to, and affect, the population, along with consumer confidence and spending habits.
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