Japan's Marubeni Becomes Major League Player With Gavilon Buy

Japanese trading house Marubeni Corp. (Tokyo: 8002), which has been on a global shopping spree in recent years so it can become a top grain supplier to China, just took a strategic step toward that goal.

The company said Tuesday it is buying privately held Omaha, Neb.-based Gavilon Group LLC for $3.6 billion plus $2 billion to cover the Gavilon's debt. The deal, expected to close in September, is the largest in Marubeni's history and the biggest offshore acquisition so far this year for any Japanese company.

Gavilon, which was sold by ConAgra Foods Inc. (NYSE: CAG) to a group of investors that included Ospraie Special Opportunities Fund and Soros Fund Management LLC, stores, handles, ships, markets and distributes grain, feed ingredients and fertilizers. The company has about 2,000 employees in 300 facilities worldwide.

The acquisition positions Marubeni, already Japan's largest agricultural trader, to become a global heavy hitter like Cargill Inc. and Archer Daniels Midland Co.

Economists say the deal is generally positive, despite concerns over the company's total liabilities of $53 billion, as estimated by Thompson Reuters.

The North American corn business is a growth area that should contribute to higher trading volume along with soybeans for China, said a note from Barclay's Capital.

Marubeni has scheduled a briefing for Wednesday to outline details about the deal.

The rate of Chinese growth in demand for commodities like corn, soybeans and pork will slow in the coming years but the growth will continue to be very high, according to a Barclay's Research report on the intensity of China's commodity demands through 2015. The growth rate in demand for beef in particular will accelerate, the report predicted. Despite being the world's largest grain producer, China imports corn and wheat to meet domestic demand for products derived from the grains, including feed for beef, pork and poultry.

Since the start of last year, Marubeni has invested about $11 billion in acquisitions abroad, mostly in mining, offshore wind power and oil and gas. Acquisitions for its food divisions include the purchased in November of the balance of shares of Terlogs Terminal Maritimo Ltda., which operates a grain export elevator in Santa Catarina, Brazil.

Last July the company signed a deal with Dong Nai Food Industrial Coop to produce feed for the growing Vietnamese market for meat and poultry.

Through its U.S. subsidiary, Marubeni owns and operates Portland, Ore.-based Columbia Grain Inc., which has a storage capacity 42.5 million bushels and exports 160 million bushels of wheat, barley, corn, and soybeans to Asia. Columbia Grain exports about 30 percent of the wheat leaving ports from the Pacific Northwest. Key Marubeni grain suppliers include Brazil's soybean giant Grupo André Maggi and Argentine wheat flour manufacturer Molino Canuelas.