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Bunge expands board under activist pressure, shares drop

November 1, 2018
Consumer Packaged Goods

Bunge Ltd said it will add four directors to its board and create a strategic review committee to explore options for the global grains trader, including a sale of the company, bowing to pressure from activist investors D.E. Shaw and Continental Grain Co.

The White Plains, New York-based agribusiness company also reported a stronger-than-expected third-quarter profit, but lowered its 2018 earnings outlook by $100 million to $1.2 billion with cuts to guidance in two of its four business segments.

Bunge shares tumbled 9.2 percent to $61.73 per share in the steepest drop in 1-1/2 years as the lower outlook and fears of future earnings volatility hammered the stock, even as the broader market rose.

The plunge more than reversed a 3.4 percent jump the previous day on news that Bunge was finalizing a deal with the activist investors to expand its board and set up the committee.

J.P. Morgan cut its price target for the company by $5 to $70 a share, citing possible earnings volatility in the coming quarters amid an ongoing U.S.-China trade war, according to analyst Ann Duignan.

The board expansion after the company has fielded unsuccessful takeover bids by rival Archer Daniels Midland Co and commodities trader Glencore, while a prolonged global grain glut has hurt crop prices.

“The strategic review committee formed by the board still leaves the door open for a possible sale of the company, but it also leaves the door open to sales of only portions of the company to give it a narrower focus,” said Christopher Muir, equity analyst at CFRA Research.

Bunge said three new directors, joining immediately, are Continental Grain Chief Executive Officer Paul Fribourg, former Gavilon Group CEO Gregory Heckman and Henry Winship, president of Pacific Point Capital. A fourth mutually agreed upon director will join the board by the end of the year, bringing the total number of board members to 15.

Bunge also said it would form a separate committee, chaired by new board member Fribourg, to conduct a “strategic review focused on enhancing long-term shareholder value.” The six-member strategic review committee will include the new directors named on Wednesday and three current directors, the company said.

“This committee has been created as a good check on what it is we’ve been doing, whether we can do additional things, whether we can accelerate things … There’s no preconceived notions of either direction or topic,” Bunge CEO Soren Schroder told Reuters.

Although Schroder is not part of the committee, it will channel its findings through him and the rest of the board, he said. There is no deadline for its review.

Bunge reported a better-than-expected third-quarter profit, helped by higher margins from its agribusiness division.

Net income available to shareholders rose to $365 million, or $2.39 per share, in the quarter ended Sept. 30, from $92 million, or 59 cents per share, a year earlier.

Excluding one-time items, the company earned $2.52 per share, beating average analysts’ estimates of $2.39 per share, according to Refinitv data.

Bunge held its 2018 agribusiness segment earnings outlook unchanged in the upper half of an $800 million to $1 billion range, supported by oilseeds operations in the Northern Hemisphere. Fertilizer segment guidance was raised by $10 million tom $35 million.

But the company cut its food and ingredients unit guidance by $40 million to a range from $250 million to $270 million, and forecast a $20 million to $40 million loss in sugar and bioenergy, from a previously stated break-even outlook.

By Karl Plume

Source: Reuters

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