May 30, 2012

 

Marubeni's Gavilon acquisition draws near

 

 

The acquisition of US grain merchant Gavilon for more than US$5 billion, including debt, by Japan's Marubeni Corp is drawing near, according to sources familiar with the matter.

 

Marubeni, Japan's fifth-largest trading company, has been in advanced talks to buy Gavilon since early May. The Japanese company has confirmed its interest in Gavilon but said no decision had been made.

 

Although the deal is pending final approval, the proposed terms value Gavilon at more than US$5 billion including debt, and Marubeni has lined up financing for the deal, said the sources, who asked not to be named since the deal has not been announced.

 

A valuation at that level would be in line with the proposed terms the two sides have been discussing since early this month. People familiar with the matter told Reuters previously that Marubeni has offered to pay US$5.2 billion for Gavilon, including assuming some US$1.7 billion of debt the US grain trader had at the end of December.

 

Representatives of Marubeni and Gavilon could not immediately be reached for comment.

 

Marubeni had earlier dispatched a team of auditors to Gavilon's Omaha, Nebraska, headquarters to review its operations and finances, sources have said.

 

In addition, Marubeni President Teruo Asada traveled to New York last week with other executives as discussion of the deal reached the final stages, a person familiar with the trip said.

 

Acquiring Gavilon would deepen Marubeni's control of grain supplies from North America, the world's top grain export hub.

 

A deal could also help Marubeni challenge Archer Daniels Midland as the biggest supplier of US grains and oilseeds to China.

 

Gavilon now has about 320 million bushels of storage in the US, ranking third behind ADM and Cargill Inc but ahead of global grain giants like Bunge Ltd and Louis Dreyfus.

 

Marubeni's acquisition of Gavilon is unlikely to face any pushback from farmers and agricultural business which have long been accustomed to the presence of Japanese grain companies in the US.

 

A combination of Marubeni and Gavilon is seen by analysts as a good commercial fit, marrying Gavilon's presence in the Central Plains and Midwest with Marubeni's operations in the Pacific Northwest - the shortest US sea route to Asia.

 

Gavilon's owners include billionaire investor George Soros and hedge fund manager Dwight Anderson.

 

Gavilon also has a large footprint in the US fertilizer market, an energy operation that includes seven million barrels of crude oil storage and an oil, grain and ethanol trading unit.

 

Morgan Stanley is advising Gavilon on the transaction, while Nomura is advising Marubeni, people involved in the discussions have said.

 

Marubeni's rival trading houses Mitsui & Co and Mitsubishi Corp had both been seen as potential bidders for Gavilon but decided not to pursue a deal.

 

US analysts say Marubeni's interest in Gavilon could be driven by a desire to grab a bigger share of the lucrative business of supplying grains to China, the world's top importer of soy and a fast-growing buyer of corn.