SLC Agricola Wins a $358M Land Fight, and JP Morgan Winces

Markets

Key Facts

—The deal. SLC Agrícola, one of Brazil’s largest listed farmers, agreed on June 26 to buy a block of Mato Grosso farmland for R$1.85bn ($358m).

—The seller. The land belongs to Radar, a farm-property venture tied to Cosan and US investor Nuveen, and totals about 41,200 hectares.

—The rival. SLC pulled rank with a contractual first-refusal right, snatching the block from a matching bid by Eraí Maggi’s Bom Futuro.

—The price. SLC says it works out to about R$64,200 ($12,400) a hectare, roughly 15 percent below local market value.

—The terms. A signal of R$700m ($135m) is due within days, with the R$1.15bn ($222m) balance on deed signing, set for October.

—The catch. JP Morgan called the win a negative for shareholders, because it pushes SLC’s debt higher just as El Niño clouds the harvest.

SLC Agrícola just won a bidding war for prime Brazilian farmland, and the most interesting part is that one of its own bankers thinks it should have walked away.

On Friday, June 26, the company told regulators it had locked up a block of farms in Mato Grosso, the heart of Brazil’s grain belt, for one and eighty-five hundredths billion reais, about three hundred and fifty-eight million dollars.

The land had been put up for sale by Radar, a farm-property venture linked to the energy and logistics group Cosan and the American investment manager Nuveen. The package runs to roughly forty-one thousand hectares, planted with soybeans, corn and cotton.

How SLC Agrícola won the fight

The win was less an auction than a legal trump card. A rival grain giant, Bom Futuro, controlled by the Maggi family, had put in an offer for the whole block and set the price.

SLC Agrícola already rented and farmed a large slice of that land, and its lease carried a right of first refusal. That let it step in, match the rival bid and take the entire block, leaving Bom Futuro empty-handed.

The company says it already operates seventeen thousand six hundred of the roughly twenty-nine thousand farmable hectares in the block. Owning the land it already works should add about twenty-two thousand hectares to the area it actually plants, and it can fold the farms in quickly because the machinery and grain stores come with them.

Payment comes in two parts. A deposit of seven hundred million reais, around one hundred and thirty-five million dollars, is due within days, with the balance of just over a billion reais payable when the deeds are signed, expected by the end of October.

Why JP Morgan winced

Here is the twist that makes the deal worth a foreign reader’s attention. SLC argues the land was a bargain, priced at about sixty-four thousand reais a hectare, some fifteen percent below what comparable ground fetches in the region.

Cheap land, in other words, but an expensive moment to buy it. JP Morgan told clients the purchase was a negative for the investment case, not because of the farms themselves but because of the bill.

SLC had spent heavily on acquisitions the year before, and its debt had already climbed. The ratio of net debt to earnings rose to about two and seven-tenths times at the end of the first quarter, up from under two times at the close of last year, and this deal adds to that load.

The timing sharpens the worry. A possible El Niño weather pattern hangs over the second half of the year, threatening the second corn crop that makes this particular land so valuable, so SLC is taking on more debt at the exact moment the harvest outlook turns uncertain.

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SLC Agricola Wins a $358M Land Fight, and JP Morgan Winces

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What it signals for Brazilian farmland

For an investor watching from London or Munich, the deal cuts against a popular story. Much of the recent talk about Brazilian agriculture has been about a debt squeeze, with indebted farmers and a rising wave of distressed land hitting the auction block.

This is the opposite picture at the top of the market. The best land in the best regions is still so prized that two of the country’s biggest producers fought over the same block, and the winner was willing to stretch its balance sheet to keep it.

It also shows that for the giants, owning land still beats renting it, even as many in the sector chase lighter, lease-based models. The lesson is that in Brazil’s grain belt the contest for scale is, at bottom, still a contest for dirt.

Frequently Asked Questions

What exactly did SLC Agrícola buy?

SLC agreed to buy a block of farmland in Mato Grosso known as the Bloco Mato Grosso, owned by Radar, a farm-property venture tied to Cosan and the US investor Nuveen, for one and eighty-five hundredths billion reais. The package covers about forty-one thousand hectares used to grow soybeans, corn and cotton, much of which SLC already farmed under a lease.

How did it beat Bom Futuro to the deal?

Bom Futuro, the rival grain group controlled by the Maggi family, made an offer for the whole block and set the price. SLC held a right of first refusal through its existing lease, which let it match that bid and take the entire block for itself.

Why did JP Morgan view the purchase negatively?

The bank said the land was good but the timing was costly. SLC’s debt had already risen after earlier acquisitions, with net debt at about two and seven-tenths times earnings, and this deal adds more just as a possible El Niño threatens the second corn crop that makes the land valuable.

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