Thursday, April 05, 2007

Bunge What May We Trust?

Bunge (NYSE:BG) issued a warning early before market open on Tuesday April 3 that they will not be meeting the street's consensus for earnings. The excuse of choice is a convoluted explaination about the difficulties of managing real world committments to farmers and how to offset them with commodities contracts in the real world futures markets. (Most of the future strategy was going short). Management is holding onto hope for the rest of the year.

Bunge is located in one of the most improbable places for an Ag-business: White Plains New York. The warning was issued when the quarter was completely over and only the accounting remained. In a business where commodities trading rules and much of your staff are glued to computers monitoring your position, it is very difficult to believe that management only figured this out when the game was over. Being traders they probably were hoping for the market to skate them onside and the clock ran out. They then had no other choice but to be realistically honest and surprise the pants off everyone.

Lets look at a few other events that occured while managment was being surprised. On Feb 27, 2007 with the Q1 being 2/3 over they declare a regular dividend thereby signalling to the market that all is well.

On Mar 22 Bunge raised through a finance subsidiary approximately $250 million in debt using JPMorgan as an adviser. The lenders and hopefully JPMorgan were doing due diligence at this time while the quarter was falling apart. I really wonder how frank and candid the discussions were. Did Bunge management know and not tell the lenders? Did the JPMorgan syndicate look at the current earnings and still ram the deal through?

More difficulties include the sudden resignation of the CFO William Wells to accept a position as CFO with Loblaws. Bunge was surprised and is now looking for a new CFO. Candidates should be wary about this hornets nest. The resignation was announced on March 2 and William Wells left on April 1.

The icing on the cake is the rather huge amount if insider selling that occured . On Mar 15 the departing CFO blew out his option position which at that time probably looked understandable. On the same day G Archibald the Co-CEO Bunge Global Agribusiness blows out a similiarly large position. On Mar 30 just two business days before the the earnings warning the Chief Personnel Officer SA Carvalho Flavio blows out his position and cashes in some considerable chips.

If for some reason this is all ruled legal how can you believe and trust these guys. Investigation and lawsuits must be pending as it just smells very bad.