ADM Purchase of Bunge Would Face Regulatory Hurdles

The Wall Street Journal has reported that

Enterprise value/EBITDA multiples of comparable transactions have averaged a 10.9 times multiple, based on PitchBook data. When we apply this multiple to our Bunge 2018 forecast EBITDA of $1.53 billion, we value Bunge at $84 per share. More optimistically, a 12.9 times multiple, the largest multiple of the comparable transactions, would value Bunge at $104 per share.

We think the combined ADM-Bunge would benefit from economies of scale. Currently, ADM is a larger player in North America, while Bunge’s strength is South America. A combined company would likely be the dominant grain merchandiser and processor of both continents. However, we see potential regulatory concerns for a merger given the high market share in both grain merchandising and oilseeds processing that a combined ADM and Bunge would have in both the United States and Brazil. If a transaction were to be agreed upon by both companies’ management teams and boards, we would expect mandated divestitures to clear regulatory approval. Accordingly, even if firm merger details are disclosed, we would assign a 50% chance that any proposed acquisition would close as planned.

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