Bunge Ltd

views updated

Bunge Ltd.

50 Main Street, 6th Floor
White Plains, New York 10606
Telephone: (914) 684-2800
Fax: (914) 684-3499
Web site: http://www.bunge.com

Public Company
Incorporated: 1995 as Bunge Agribusiness Ltd.
Employees: 24,207
Sales: $14 billion (2002)
Stock Exchanges: New York
Ticker Symbol: BG
NAIC: 311222 Soybean Processing

With its corporate headquarters located in White Plains, New York, Bunge Ltd. is a global agribusiness and food company divided into three division. The agribusiness segment, which accounts for 56 percent of the company's operating profit in 2002, is comprised of three business lines: grain origination, oilseed processing, and international marketing. Bunge is a leading global soybean exporter. The fertilizer division serves the South American market, primarily Brazil, where Bunge is the only integrated fertilizer producer. Finally, Bunge's food products division takes advantage of the raw materialssoybeans, crude vegetable oils, wheat, and cornavailable through the company's agribusiness operation to engage in four business lines: edible oil products, wheat milling and bakery products, soy ingredients, and corn products. Bunge employs some 24,000 people working out of more than 400 facilities located in 29 countries across four continents.

Roots Of Company Date to Early 1880s

The origins of Bunge Ltd. can be traced to 1818 and Amsterdam, where Johann Peter Gottlieb Bunge founded an import/export trading company, Bunge & Co. Some 40 years later, the company, led by Johann's grandson, Edouard Bunge, emerged as one of the world's top commodity trading firms. The relocation of Bunge's base of operations outside of The Netherlands began in 1884, when Edouard's brother, Ernst Bunge, moved to Argentina. He and his partners formed an affiliate, Bunge y Born, to become involved in the South American agricultural commodities market. Bunge itself began investing directly in South America 20 years later, targeting Brazil. Focusing initially on wheat exportation, the company eventually became involved in soybean crushing, the production of fats and oils, as well as the manufacture of paints, textiles, and cement.

In the 20th Century, Bunge became increasingly global, spreading its activities to Venezuela, the United States, the United Kingdom, Spain, Australia, and Asia. In 1938, the company became involved in the Brazilian fertilizer market, and ultimately became South America's leader in the category. The move to the United States occurred in 1918, when Bunge began to trade in agricultural commodities. The company formed Bunge North American Grain Corporation in 1923 to take advantage of the difference in seasons between the northern and southern hemispheres: farmers in South America would be harvesting their grain crops just as American farmers were planting theirs. The subsidiary built its first major grain facility in Midway, Minnesota, in 1935, after buying an old rail terminal in the community. Bunge North America became Bunge Corporation in 1943, as the company continued its efforts to expand beyond trading to add grain production and value-added processing capabilities. In keeping with this plan, Bunge bought two major grain companies in 1946: Hallet & Cary, Inc., with a number of midwestern elevators, and Gano Grain Company, with operations located mainly in Kansas. Over the next 15 years, Bunge continue to pick up grain elevators across the United States, in the process growing into one of America's top grain handling and exporting firms. Bunge made an even greater commitment to its export business in the 1960s when it began to focus its attention on the Mississippi River. In 1961, it opened the largest U.S. grain export facility of its day in Destrehan, Louisiana. In 1967, Bunge added to the facility by building its first soybean processing plant.

Over the next 20 years, Bunge expanded in a number of directions, creating a slate of value-added downstream businesses. The Lauhoff Grain Company (renamed Bunge Lauhoff Grain) was acquired in 1979, resulting in Bunge's emergence as the world's largest corn dry miller. A year later, Bunge, through its Bunge Foods subsidiary, established a shortenings and oils business when it acquired three edible oil refineries from Swift & Company. In 1987, Bunge Foods made another strategic acquisition, buying Carlin Foods Corporation and adding a range of bakery products for sale to retail and wholesale outlets, as well as to food processors and foodservice companies. During this period, Bunge also added more grain origination facilities, soybean processing plants, and corn dry milling operations. In 1988, management elected to focus on the grain origination assets it had accumulated on the Mississippi and its tributaries, and as a consequence sold a dozen interior grain elevators located in Texas and Oklahoma. To better manage its assets, Bunge moved its headquarters from New York City to more centrally located St. Louis in 1990. In that same year, the company picked up ten elevators located in Louisiana, five of which were on the Mississippi River. These assets acquired from the Great River Grain Corporation added some 12 million bushels in storage capacity. In 1992, Bunge Lauhoff Grain acquired the only corn dry mill in Canada, buying Ontariobased Kingroup, Inc. Furthermore in 1992, Bunge forged a joint venture with ContiQuincy Export Company to promote both companies' soybean operations.

Alberto Weisser Joins Company in 1993

Until the early 1990s, direct descendants of the Bunge and Born families ran Bunge y Born, a private company that was content to remain little known to the general public. It was not until 1988 that the company turned to public financing for the first time, issuing commercial paper in order to increase its credit and fund diversification efforts. Expansion and diversification, however, led to the need for more experienced executive talent. One of the managers Bunge recruited, Alberto Weisser, who joined the company in 1993 as chief financial officer, became Bunge's chairman and chief executive officer. Fluent in several languages, Weisser was well qualified to lead a global business. He also brought with him 15 years of experience in financial positions with the German chemicals conglomerate BASF. He was named a Bunge director in 1995, CEO in 1999, and ultimately rose to the chairmanship in 2001. Weisser was also instrumental in Bunge hiring other executives from outside the grain trade business.

The management of Bunge y Born initiated a major restructuring of the business in the 1990s. In 1995, Bunge Foods bolstered its ability to serve the West Coast of the United States by acquiring the packaged edible oil business and other assets of Premier Foods Corporation. The operation was moved to Modesto, California, and increasingly began looking to agribusiness. In 1995, Bunge International spun off assets to create Bunge Agribusiness Ltd., which in 1999 would be renamed Bunge Ltd. In 1997, the company added to its milling capabilities by investing in one of the largest wheat mills in Mexico and also added nine midwestern grain elevators from Homer Grain Company. By 1998, however, Bunge decided to sell off its consumer product businesses in Argentina, Australia, and Venezuela in order to concentrate on such agribusiness areas as grain and oilseed origination, oilseed processing, export trading, feed, food ingredients, and fertilizers and phosphate-based nutrients. To support this vision, Bunge completed a number of initiatives in 1998. The grain division entered into an arrangement with Zen-Noh Grain Corporation to jointly manage their New Orleans-based export grain elevators. The company also expanded its Mexican operations. Subsidiary Lauhoff Grain acquired a Kellogg Company's corn dry operation located in Queretaro. In Mexico City, Bunge invested in a bakery mix facility to take advantage of the country's expanding in-store bakery market. In the United States, Bunge Foods bought a Missouri frozen dough production plant from Au Bon Pain, thereby entering the frozen bakery business. Included in the deal was a contract to supply frozen bakery products to some 300 Au Bon Pain bakery-cafes and another 70-plus St. Louis Bread Company restaurants. To gain a foothold in the frozen bakery products market in the West Coast, Bunge Foods also acquired a Tustin, California, production facility from Dansk Foods. On the agribusiness side of the business, in 1998 Bunge also opened a soybean crusher-refiner operation in Council Bluffs, Iowa, becoming the largest oil extractor in the country. In addition, the soybean processing division added an integrated refinery to its crushing facility located in Decatur, Alabama.

In order to better position itself as a global business, the company moved its headquarters from Sao Paulo, Brazil, to White Plains, New York, in 1999. Until this point in its history, according to a company spokesman quoted by Global Finance, Bunge had "always been a 'virtual' company. It didn't physically exist. There was just a holding company, not a real corporate center for all operations. Now we have the platform to fund the company on a centralized basis." A major component to Bunge's strategy was to take the company public. In 2000, management announced that it planned to take Bunge public within two years. In the meantime, subsidiary Bunge Global Markets was created to engage in export trade opportunities in bulk commodities; Bunge Foods opened a major new edible oil bottling plant in Illinois, serving the important private-label retail market in shortenings and oil; and sister company Bunge Corporation changed its name to Bunge North America.

Company Perspectives:

Experience has proven that a decentralized approach to running our businesses works best for us. Over our 180-plus year history, we have grown Bunge by allowing our local teams to operate with the latitude to be entrepreneurialto identify and capitalize on opportunities and trends before they become known to the broader market. Decentralization also allows us to remain close to our customers and to offer innovative services that match the particular needs of regions, market segments and individual customers. Operating with minimal bureaucracy requires that employees embrace teamwork, trust, openness and personal responsibility as a way of doing business. At Bunge we actively promote these values. We hire managers that possess these traits; we reinforce these criteria in our ongoing employee training; and we base acquisition and partnership decisions on these parameters.

Bunge Ltd. Goes Public in 2001

The parent company, Bunge Ltd., went public in August 2001, issuing 17.6 million shares at $16 each in an offering led by Morgan Stanley and Credit Suisse First Boston, netting the company $281.6 million, much of which was earmarked to retire a portion of the company's $914 million in short-term debt. Global Finance explained why after 200 years of being privately held, Bunge now elected to become a public company: "Bunge's business is booming, the company can streamline its finances by consolidating the books of its far-flung international subsidiariesand the 100-plus heirs of the founding Bunge and Born families can cash in some of their long-held ownership chips." The only member of the founding families to now hold a position of importance in the company was Jorge Born, Jr., a deputy chairman and director.

Bunge's global aspirations were greatly enhanced in 2002 when the company purchased a 55 percent controlling interest in Cereol SA, a French agribusiness competitor. Bunge paid approximately $830 million to Italian energy company Edison SpA and also assumed some $700 million in debt. (In April 2003 Bunge acquired all outstanding shares to become a 100 percent owner of Cereol.) As a result, Bunge greatly enhanced its capacity to process soybeans in the United States and Europe. Its North American operations were able to take advantage of Cereol's subsidiary, Central Soya Co., which operated six plants located in eastern farm-belt states, nicely complimenting Bunge's operations in Illinois, Iowa, Kansas, and Alabama. As for Europe, the world's top importer of soybeans, Bunge would now be able to process soybeans at Cereol-owned crushing facilities in Spain and Italy, rather than merely ship soybean byproducts to the region. Bunge also gained a strong presence in Central and Eastern Europe through the Cereol transaction. Overall, the acquisition was important on other levels. It provided more vertical integration, offering efficiencies and cost savings. Also, by adding European markets to its traditional strongholds in North and South America, Bunge was able to spread some of its risk, an important factor in light of South America's history of political instability. In addition, Cereol assets enabled Bunge to gain the size necessary to compete globally with the likes of Archer Daniels Midland and Cargill Inc. In a conference call conducted shortly after the deal was announced, Weisser commented, "This transaction changes the industry landscape quite dramatically. By increasing our oilseed processing capacity from 20 million tons to nearly 34 million tons, we move ahead of Archer Daniels Midland Company (ADM) and Cargill. We will immediately become the market leader in regions such as Canada and Eastern Europe where we have no presence, while our position will be enhanced in countries where we already have operations, such as the US."

Although it remained open to additional acquisitions, Bunge made it clear that its top priority in the near term was to successfully integrate the Cereol operations. Nevertheless, Bunge was able in early 2003 to forge an important alliance with DuPont, creating an $800 million specialty food ingredients joint venture named Solae L.L.C. The business, based in St. Louis, was intended to be involved in the global production and distribution of specialty food ingredients, initially focusing on soy proteins and lecithins. DuPont, contributing its protein technologies food ingredients business, garnered a 72 percent stake in the Solae, while Bunge received $260 million in cash and a 28 percent minority interest in the new company in exchange for its soybean ingredients business. Furthermore, the deal called for DuPont and Bunge to use biotechnology to jointly develop and commercialize new strains of soybeans and other products for the farming industry. Another major area for growth targeted by management was the fertilizer market in Brazil, where farmers used about half as much fertilizer as those in more industrialized countries. Through its South American subsidiary, Bunge bought a number of small fertilizer companies and acquired large stakes in Brazilian phosphate mines. Little known for two centuries, the Bunge name appeared destined to receive greater recognition in the years to come.

Principal Subsidiaries

Bunge North America, Inc.; Cerco S.A.; Bunge Brazil S.A.

Principal Competitors

Archer Daniels Midland Company; Cargill, Incorporated; Con-Agra Foods, Inc.

Key Dates:

Bunge & Co. is founded by Johann Peter Gottlieb Bunge.
Affiliated Argentine company, Bunge y Born, is founded.
Bunge North American Grain Corporation is formed.
Bunge Agribusiness Limited is formed.
Bunge Agribusiness becomes Bunge Limited.
Bunge Limited goes public and begins trading on the New Stock Exchange.

Further Reading

Byrne, Harlan S., "To Market, to Market," Barron's, October 21, 2002, p. 20.

Kilman, Scott, "Bunge Increases Grain Position with Bid of $830 Million for Cereol," Wall Street Journal, July 22, 2002, p. C14.

Lee, Thomas, "Agribusiness Company Bunge Has Successful Year After Going Public," St. Louis Post-Dispatch, October 27, 2002.

McCrary, Ernest S., "Bunge Finally Lifts The Veil," Global Finance, September 1, 2001, p. 15.

Reeves, Amy, "Agribusiness Plants Seeds For Global Growth," Investor's Business Daily, October 28, 2002.

Willoughby, Jack, "Offerings in the Offing: Against the Grain," Barron's, July 30, 2001, p. 33.

Ed Dinger