By David Ljunggren and Rod Nickel
OTTAWA (Reuters) -Canada's Competition Bureau on Tuesday said it found major competition concerns around U.S. grains merchant Bunge's proposed acquisition of Glencore-backed Viterra, throwing an obstacle before a global agriculture merger that is unprecedented in dollar value.
The deal would create a company worth $34 billion including debt, nearer in scale to rivals Archer-Daniels-Midland and Cargill.
In a statement accompanying a formal report to Ottawa, the bureau said the deal was "likely to result in substantial anti-competitive effects and a significant loss of rivalry between Viterra and Bunge in agricultural markets in Canada".
It determined the transaction was likely to harm competition for grain purchasing in Western Canada, as well as for selling canola oil in Eastern Canada.
The two companies said in a joint statement that the bureau's concerns were misplaced and vowed to work with Canadian authorities.
The non-binding report was sent to Canada's transport ministry, which has until June 2 to review the deal. The minister's office could not immediately comment.
The Canadian government will take a final decision.
The Competition Bureau has a mixed record in trying to block deals, including last year its failed attempt to block a C$20-billion merger of telecom firms.
The next steps are for the government to identify any overlapping concerns related to competition and transportation and ask the companies to address them, according to the Competition Bureau's report. Big corporate mergers typically involve the companies remedying competition concerns by divesting some assets to third parties.
If the companies' remedies satisfy cabinet, it can approve the merger, or approve it with conditions.
The cabinet's deliberations do not follow a set timetable.
COMPETITION CONCERNS
Farm groups in Saskatchewan had worried about the merger.
"The concern would be, is the new organization going to keep all those facilities open and is there going to be the competition that there was before,” said Keith Fournier, who farms near Lone Rock, Saskatchewan and chairs the SaskCanola farmer group. "There’s a limited number of players in the market."
The bureau also found Bunge could influence the economic behavior of Saudi-owned G3, a competitor to Viterra. As a minority G3 shareholder, Bunge has access to confidential competitively sensitive information, the bureau said.
G3 and Viterra operate separate grain-handling terminals in Vancouver, Canada's biggest port, as well as country elevators that buy grain directly from farmers.
G3 does not comment on shareholder matters and is conducting business as usual, spokesperson Peter Chura said.
Bunge, Canada's biggest processor of canola into vegetable oil and meal, would account with Viterra for seven of 14 existing crushing facilities. In Eastern Canada, the companies are two of just three canola oil producers.
The deal would thus reduce competition both in buying canola from farmers in Western Canada and competition for selling canola oil in Eastern Canada, the bureau said.
Bunge, Viterra and G3 account for a combined one-third of Western Canada's elevator capacity.
The two companies reiterated that they expected the transaction to close in the middle of 2024.
"We are pleased the regulatory process is advancing and are confident the transaction will yield considerable benefits to Canada," they said.
But Morningstar analyst Seth Goldstein said Canada's objections will likely cause at least a slight delay.
Investors will listen for updates on the deal on Wednesday when Bunge holds a call to discuss quarterly results.
Bunge has filed for regulatory approvals for the merger in North and South America, Europe and China, Chief Executive Officer Greg Heckman said last November.
Bunge shares eased slightly in New York after Canada released the report.
(Reporting by David Ljunggren and Rod Nickel; additional reporting by Karl Plume in Chicago; Editing by Chizu Nomiyama and Franklin Paul)
