LONDON: Archer Daniels Midland Co’s move on fellow US grain merchant Bunge is raising sceptical eyebrows, but makes more sense as a tactical step to ward off a possible rival predator - commodities trading giant Glencore.

Still, ADM is likely to face an array of business overlap and regulatory problems should it make a formal bid, and even if successful it might have to carve up Bunge’s assets with Swiss-based Glencore.

In that scenario China’s COFCO, which proclaims its ambition to sit at the top table of global food traders, may also be tempted to seek Bunge assets despite difficulties in digesting two major acquisitions it made in 2014.

ADM is one of a quartet of merchants alongside Bunge, Cargill and Louis Dreyfus - nicknamed the ABCDs after their initials - which has dominated trade in agricultural goods for decades. However, several years of big harvests and subdued prices have slashed margins for buying, selling and shipping crops.

Glencore already made an unsuccessful approach to Bunge last year, and now ADM’s own proposal to acquire the White Plains, New York-based firm has revived the prospect of a wave of mergers and acquisitions.

“The ADM approach has to be considered defensive and is a clear example of the consolidation that is taking place in the grain and grain processing industries,” Jay O’Neil, senior agricultural economist with Kansas State University, said.

ADM and Bunge have declined to comment on the takeover approach, while Glencore has not said whether it will resume its interest in Bunge, one of the world’s top oilseed processors.

Many market participants doubt the wisdom of a full ADM takeover of Bunge, given antitrust issues that would arise in the United States, where ADM is the largest grain merchant.

ADM’s pursuit of Bunge has also puzzled observers as it has focused on higher-margin food ingredients businesses since its $3 billion acquisition of Wild Flavors in 2014, while reining in spending on grain trading and processing.

However, ADM is likely to have an eye on Glencore, which is also one of the world’s top mining and minerals trading groups.

“From an ADM perspective, Glencore absorbing Bunge would create a dangerous competitor for them. So they may be trying to deter Glencore,” said Jean-Francois Lambert, founding partner of consultancy Lambert Commodities and a former HSBC banker.

According to sources, Glencore is subject to a standstill agreement with Bunge that prevents it from making a fresh approach following its unsuccessful move last year. However, this lapses in February or in the case of a rival bid.

A battle for Bunge is only one of several scenarios. The likelihood of US regulatory hurdles means ADM could agree with Glencore to divide Bunge’s assets, notably in the United States where the Swiss-based firm is known to be interested in expanding its relatively small presence.

This would also make more business sense. Glencore, which spun off its agriculture division a year ago after selling half of the business to two Canadian pension funds, appears better suited to acquiring Bunge.

“Glencore and ADM may bid against each other or they may find a nice way to split it up. But the synergies between Glencore and Bunge are much bigger than between ADM and Bunge, where there are huge overlaps,” a senior banker said.

ADM already has experience of a difficult acquisition with Toepfer, a century-old German merchant over which it took full ownership in 2014. Traders say integrating Toepfer has brought internal headaches and limited benefits in trading.

Reuters