Glencore's Viterra Buys Gavilon Grains Unit to Expand in U.S.

In Business
2022-01-26 09:13:10Z
By Bloomberg

(Bloomberg) -- Glencore Plc's Viterra unit agreed to buy the grains business of Gavilon Group LLC from Marubeni Corp., giving the world's top commodity trader a bigger foothold in the U.S. with key crop prices near multiyear highs.

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Viterra will pay $1.13 billion plus working capital, it said in a statement. The company has been seeking to expand in the U.S. for years -- Glencore made an unsuccessful approach to rival Bunge Ltd. in 2017 -- and new Chief Executive Officer Gary Nagle said in December the company was looking for ways to unlock more value from its agriculture business.

Viterra will acquire a significant agriculture footprint in the world's largest grain shipper, after largely being concentrated in countries like Canada and Australia. Gavilon has assets throughout the Plains and Midwest, as well as indirect minority ownership in two West Coast port terminals which offer a gateway to Asia.

Crop traders have seen profits boom in recent years as agricultural commodities were whipsawed by poor weather, surging Chinese demand and supply-chain disruptions. Archer-Daniels-Midland Co., another of the world's top agriculture merchants, reported better-than-expected earnings this week and Cargill Inc. recently capped its most profitable year on record.

The move comes five years after Glencore sold almost half of its agribusiness to the Canada Pension Plan Investment Board and British Columbia Investment Management Corp. The company has since rebranded the unit as Viterra. Glencore has repeatedly said that it needs to unlock more value from the business and Nagle told investors in December that it was looking at a number of opportunities to do that.

Marubeni said it expects to get as much as 400 billion yen ($3.51 billion) from the sale, including the collection of loans. Marubeni will transfer shares of Gavilon to Viterra following a reorganization of Gavilon's structure, the Tokyo-based company said in a statement.

The decision was made after considering the "uptrend in the grain supply industry," Marubeni said. The company saw an opportunity to transfer Gavilon's grain business on "appropriate terms" and assessed that it would be able to maximize its own consolidated asset value, it added.

Marubeni bought Omaha, Nebraska-based Gavilon for $2.7 billion in 2013 on hopes it would allow the Japanese trader to expand its sourcing of corn and soybeans to better compete with other top global grain traders in Asia. However, the business suffered through a series of challenges including a U.S. drought, low commodity prices and the U.S.-China trade war.

The trading giant sounded out buyers for Gavilon in 2019, Bloomberg reported at the time, although Marubeni denied that it intended to sell the unit.

Gavilon's fertilizer business will be transferred to Marubeni's U.S. unit, according to the statement. The trading house expects a record profit this fiscal year through March, along with its domestic peers, as commodity prices surged.

The deal is expected to close during the fiscal year ending March 31, 2023.

(Updates with details on Gavilon business)