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Glencore plans three-way Viterra split-source

By Victoria Howley and Rod Nickel

LONDON/WINNIPEG, Manitoba (Reuters) - Glencore is planning a three-way carve-up of Canada's largest grain handler Viterra , an industry source said, to help navigate a politically charged federal review process if it wins a looming bidding war for the company.

The source told Reuters that the commodity trading giant wanted to buy all of Viterra and then sell its retail business to Agrium, a Canadian fertilizer producer.

Privately owned grain trader Richardson International would take Viterra's food processing unit in a rare and complex so-called "back-to-back" transaction.

Earlier reports had said Glencore, also bidding for mining group Xstrata , was planning a joint offer with Agrium and Richardson, something that might help the Swiss based trader get round Canadian concerns about a sale to a foreign entity.

As the second-largest Canadian grain handler, Richardson would likely also be interested in some grain elevator and port assets.

Viterra, based in Regina, Saskatchewan, said Thursday it had established a process for potential buyers, and its stock rose 10 percent.

Viterra stands to profit from a government decision to end the Canadian Wheat Board's monopoly on Western Canadian wheat and barley sales, meaning that a buyer would win access to Canada's high-quality canola, spring wheat, oats and durum wheat supplies. Canada, the world's No. 8 grains producer, is the leading exporter of each crop.

The company's shares ticked up 0.3 percent on Friday to C$16.13, while Glencore stock gained 2.7 percent to 423.18 pence.

Shares have hovered around $16 since Thursday, when Viterra said it was aware of media reports of interest at that price. That would value it at some C$5.9 billion ($5.95 billion).

U.S.-based Bunge and Archer Daniels Midland have also made approaches to Viterra.

Sensitivity to anti-trust issues will be key to how Glencore, Richardson and Agrium - or other suitors - propose to break down the assets, said a source familiar with the matter.

"Whoever's going to be involved in this will be aware of issues with the Competition Bureau," the source said. "Everybody is aware how the bureau views these things."

The bureau was a key player in the last big farm company takeover in Canada, when Saskatchewan Wheat Pool absorbed Agricore United and became Viterra in 2007.

To satisfy the bureau, the Wheat Pool sold some elevators and port assets to No. 3 player Cargill. It also divested some grain elevators and farm retail stores to Richardson, which had also bid for Agricore.

A joint bid by Glencore, Richardson and Agrium would likely be palatable to the bureau as long as Richardson doesn't get too many elevator and port assets, said agriculture analyst Chuck Penner of LeftField Commodity Research in Winnipeg.

Agrium is already the biggest U.S. farm retailer and Penner said its leap to the same position in Canada by purchasing Viterra's stores might be less of a competition concern because farm retailing has a lower cost of entry than grain handling.

Viterra is currently the biggest Canadian farm retailer, with about 260 stores selling seed, chemicals and fertilizer.

A foreign takeover of Viterra would be subject to a federal government review to determine whether it is of "net benefit" to Canada. The government vetoed a takeover of Potash Corp by Anglo-Austalian mining giant BHP Billiton in 2010, damaging the country's image as a free market supporter.

Ottawa may be less likely to block a foreign bid for Viterra, however, because its home province of Saskatchewan has already said it doesn't see the company as a strategic resource and does not collect royalty revenues from it, unlike Potash.

Adding names of Canadian farm champions like Agrium and Richardson - a family owned company in business for 155 years - would likely make Ottawa more supportive of a foreign bid, since it would make two Canadian companies stronger.

Glencore and Richardson declined to comment, while a spokesperson for Viterra could not be immediately reached.

($1=$0.99 Canadian)

(Editing by Chris Wickham and Janet Guttsman)

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