Bunge Limited's (NYSE: BG) offer to buy Tully Sugar has been held up by a mere 3% shortage in votes to remove an arbitrary total cap on individual stakes of Tully stock at 20%. This derailed Bunge's plan to venture into Asia's sugar market via acquisition of Tully's Australian sugar mills. But this is likely to just be the beginning of Bunge's Asian story.

The rejected offer
Bunge had made an offer to buy Tully Sugar for about $127 million, or A$41 per share payable in cash. Bunge's offer was conditional on 50.1% minimum acceptances and shareholder approval to amend the current Tully Sugar 20% shareholding cap. But the plan to remove the 20% shareholding cap just barely fell short of the 75% support required.

Queensland Sugar, which has a 13% stake in the company and markets all of Tully's produce, opposed the plan, which ultimately led to the deal's failure. Unfortunately for Bunge, this didn't stop others from immediately getting involved. The broken deal paved the way for an offer by Mackay Sugar to merge with Tully and other independent sugar mills to form one large grower-controlled business, a deal Queensland Sugar is likely to support. Clearly, the sharks are circling the industry, and more than a few parties are eager for some rapid consolidation.

Expansion plans
Bunge, the world's second largest sugar trader, is an international company with agricultural and food businesses in more than 30 countries. The company has sugar origination, trading and marketing businesses, as well as sugar- and sugarcane-based ethanol production operations in Brazil.

But Bunge's attention for the time being is elsewhere. Asia is the largest consumer of sugar in the world, and demand for the commodity is still on the rise. Bunge wants to tap the lucrative Asian markets, and it sees Australia as the supply base for its Asian venture, since Australia is the third largest exporter of sugar in the world. No doubt, Australia's geographical proximity to Asia should be viewed as an added advantage.

From a production standpoint, Bunge owns eight  sugar mills in Brazil. Bunge's total annual sugarcane milling capacity is 20 million metric tons. Acquiring Tully would have added an estimated 1.5 million metric tons and increased Bunge's volume of production by a rather significant margin plus add the aforementioned geographic advantages.

A ray of hope
The failure of Bunge's bid for Tully has crushed its immediate hopes of a foothold in the Australian sugar industry. But according to Bloomberg and Bunge CEO Chris White, the mission continues. The company will continue to examine various sugar opportunities in Australia and elsewhere.

This is not the company's first failure to launch in Asia. Bunge and its competitors Cargill and Cosan Limited (NYSE: CZZ) had bid to acquire CSR's sugar unit, but in vain. Even after failed attempts to enter the Asian market through the Australian sugar industry, however, there is no reason for Bunge to lose hope. Let's wait and watch what Bunge's next step will be to tap the Australian sugar industry, and subsequently the oh-so-promising Asian market.

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