Business News : Japan's Marubeni says to buy Gavilon for $3.6 billion

TOKYO (Business News) - Japanese trading house Marubeni Corp is to buy U.S. grains merchant Gavilon for $ 3.6 billion excluding debt, the company said on Tuesday, confirming an earlier Business News report.

Gavilon is the third-biggest U.S. grain merchant in terms of the size of its marketing network, behind Archer Daniels Midland and Cargill, and also has large energy and fertilizer trading assets.

Marubeni, Japan's fifth-largest trading company, had been in advanced talks to buy Gavilon since early May.

People familiar with the matter told Business News previously that Marubeni had offered to pay around $ 5.2 billion for Gavilon, including assuming about $ 1.7 billion of debt the U.S. grain trader had at the end of December.

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

"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."

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

Gavilon now has about 320 million bushels of storage in the United States, ranking third behind ADM and Cargill 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 businesses, which have long been accustomed to the presence of Japanese grain companies in the United States.

GOOD FIT

A combination of Marubeni and Gavilon is seen by analysts as a good commercial fit, marrying Gavilo n's presence in the Central Plains and Midwest with Marubeni's operations in the Pacific Northwest - the shortest U.S. 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 U.S. fertilizer market, an energy operation that includes 7 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, or "shosha", Mitsui & Co and Mitsubishi Corp had both been seen as potential bidders for Gavilon but decided not to pursue a deal.

U.S. 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 soybeans and a fast-growing buyer of corn.

Marubeni said in 2009 it signed a letter of intent with Sinograin, a Chinese state firm, to "work closely in coming years" to build state reserves and commercial grain supplies.

In the next marketing year that starts in October, the market is expecting a 60 percent jump in China's corn imports to around 8 million tonnes.

In part, the shosha may be betting that Japanese companies can make in-roads where China's state-owned traders fear to tread.

Late last year, Chinese state-owned trading house COFCO said it was seeking acquisitions to secure supplies in the United States, Australia, Russia and South America. But it has not advanced any major purchases, although it has sent teams to va rious countries for discussions, sources said.

Beijing-backed firms have shied away from attempts at large U.S. takeovers since a political furor scuppered offshore oil driller CNOOC's bid for Unocal seven years ago, analysts say.

Marubeni is already the second-largest exporter of U.S. grains to China, with soybean shipments surging five-fold since 2008, based on data from trade intelligence firm PIERS. Marubeni handled nearly 20 percent of China's soybean imports in 2010, according to its annual report.

Unlike Marubeni, Gavilon has not made deep inroads into China, having exported less than 10,000 tonnes of grains over the past two years, data showed.

Marubeni is the best-established shosha inside the U.S. grain belt. In 2010, it overtook Japan's national federation of farm cooperatives Zen-noh as the biggest Japanese exporter o f U.S. grains and oilseeds, according to PIERS data, and accounts for more than a third of all shipments by Japan-based firms.