Right balance to capital allocation priorities
To maximize its returns, Bunge (BG) expands its operations through mergers and acquisitions, reinvests in its business, and returns value to shareholders. In 2015 alone, Bunge’s capital expenditures were $649 million. In 1Q16, capital expenditures were $110 million. The company estimates ~$850 million of capital expenditures in 2016, which includes $150 million for its sugar business.
Acquisitions in 2015
Bunge’s merger and acquisition approach has the following criteria:
- should be accretive and meet segment return targets
- should deliver market growth
- should be able to serve customers by deepening capabilities
- should be tightly linked to upstream agribusiness operations
The company’s M&A transactions totalled $392 million in 2015, which included some smaller transactions in the US to expand its Food & Ingredients segment and further enhance value-added capacity. Bunge also acquired a wheat milling business in Brazil. In its 1Q16 earnings discussion, Bunge’s management mentioned that the integration of the Pacifico acquisition and the construction of its new wheat mill in Rio de Janeiro are on track. The company expects its 2016 results to be better as a result of these 2015 acquisitions.
Recent acquisition of Walter Rau Neusser
In its 1Q16 earnings press release, Bunge announced the acquisition of Walter Rau Neusser, which is a leading European supplier of mid-specialty oils and fats for foodservice and food processing customers based in Dusseldorf, Germany. This acquisition contributes to the company’s strategy of expanding its earnings share from value-added products. The company expects to close this deal by the third quarter of 2016. The deal will give Bunge 62.8% ownership in the acquired company. The management mentioned that this acquisition fits perfectly into the company’s existing soft seed crush supply chains.
Bunge’s peers in the agribusiness industry include Syngenta (SYT), Ingredion (INGR), and B&G Foods (BGS). They reported year-to-date returns of 3.4%, 20%, and 19%, respectively. The Vanguard Mid-Cap Value ETF (VOE) invests 0.65% in Bunge.
Next, we’ll discuss how much Bunge has returned to its shareholders.