Marubeni buys Gavilon for $3.6 billion as it eyes China

Japanese trading house Marubeni Corp is to buy U.S. grains merchant Gavilon for $3.6 billion, the company said on Tuesday, as it targets China's growing demand for corn from North America, the world's top grain export hub.

China's corn purchases are expected to surpass Japan's annual imports of about 16 million metric tons (17. 6 million tons), the world's largest, within as little as three years, analysts say. China is already the world's top importer of soybeans.

"It's a move to complete a grains-supply chain of elevators, export terminals, freight handling and an end-user market, and the target is the growing market of China," said Akio Shibata, president of the Natural Resource Research Institute in Tokyo.

The U.S. grain trader has about $2 billion in debt, Marubeni said, which would take the total value of the transaction to $5.6 billion. The acquisition would be partly financed by bank borrowing, the Japanese firm added.

It is the largest overseas acquisition, including debt, in agriculture or energy by a Japanese company since Japan Tobacco bought British cigarette manufacturer Gallaher Group for almost $19 billion in 2006.

Marubeni, Japan's fifth-largest trading company, had been in advanced talks to buy Gavilon since early May (AgroNews 2012-5-16). Gavilon is the largest transaction in Marubeni's history, the company said.

Marubeni expects its global grain handling to rise to 55 million metric tons in the year to March 2013, when it adds Gavilon's 30 million metric tons to its business, coming closer in size to global grain giants like Cargill, Daisuke Okada, an adviser on food products to Marubeni President Teruo Asada, said at a briefing in Tokyo.

"We expect U.S. grains will fill future supply gaps in corn and other grains in China as output growth there may slow due to problems including water shortages," Okada said.

The company also said it expected the acquisition to lift its bottom line by more than $100 million from next year.

Acquiring Gavilon, whose owners include billionaire investor George Soros and hedge fund manager Dwight Anderson, may help the trading house challenge Archer Daniels Midland as the biggest supplier of grains and oilseeds from the United States to China.

"This acquisition supports an ongoing strategic plan by Asian grain importers to better secure future grain needs via the merger and acquisition process," said grains analyst Mike Zuzolo of Global Commodity Analytics.

"Realizing that better supply-chain management should better prepare these importers in their global sourcing needs."

Japan's trading houses, or "sogo shosha", have been scooping up assets around the world, targeting everything from shale gas to copper, as the world's third-largest economy competes with China, the second-biggest, for resources.