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Marubeni to Pay $1 Billion Less for Gavilon Minus Energy

Marubeni Corp. (8002), the Japanese trader seeking to buy Gavilon Holdings LLC, will pay $1 billion less for the U.S. grain supplier after excluding its energy business.

Under a revised agreement on a deal first announced in May 2012, the trading company will pay $2.6 billion for all of Gavilon minus its energy unit, Tokyo-based Marubeni said today in a statement. Marubeni said last year that it would pay $3.6 billion and take over $2 billion of Gavilon’s debt as part of its biggest-ever acquisition.

“This is positive news as Gavilon’s energy business is not strategic for Marubeni,” said Jiro Iokibe, an analyst at Daiwa Securities Co. in Tokyo. Marubeni has secured a 28 percent discount by excluding a unit that contributes about 15 percent to 20 percent of Gavilon’s total earnings, he said.

Buying Omaha, Nebraska-based Gavilon allows Japan’s biggest agricultural trader to expand its sourcing of corn and soybean to better compete with Cargill Inc. The U.S., which is the world’s largest producer of grain, is one of the main import sources for Asia.

Marubeni shares rose 25 yen, or 3.8 percent, to 688 yen in Tokyo trading, their biggest one-day gain since May 21. The Nikkei 225 Stock Average gained 4.9 percent.

Photographer: Tomohiro Ohsumi/Bloomberg

The Marubeni Corp. headquarters stands in Tokyo. Close

The Marubeni Corp. headquarters stands in Tokyo.

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Photographer: Tomohiro Ohsumi/Bloomberg

The Marubeni Corp. headquarters stands in Tokyo.

Yen Weakens

The yen has weakened 19 percent against the U.S. dollar since Marubeni announced its agreement to buy Gavilon on May 30, 2012. Marubeni planned at the time of the announcement to fund half the purchase with loans, Barclays Plc and JPMorgan Chase & Co. said in May reports after a call with the trading company’s executives.

The acquisition of the third-largest grain storage network in the U.S. from a group of funds led by Ospraie Management LLC was subject to a purchase price adjustment at the time of closing, Marubeni said at the time of the deal’s announcement.

The yen’s drop is unlikely to be a major reason behind Marubeni’s decision to drop the energy business, which it probably wasn’t interested in from the start, Daiwa’s Iokibe said. The exclusion helps reduce the size of the debt Marubeni takes over.

“Without the energy business, automatically the size of the debt is less,” which is very positive for Marubeni’s debt profile and general financial health, Iokibe said.

Grain Volumes

A Marubeni spokeswoman declined to comment on why the trading company dropped the energy unit or how the revised agreement affects debt levels the Japanese company will assume.

Taking over Gavilon will more than double Marubeni’s grain handling volumes to more than 55 million metric tons a year, the Japanese company said in May last year. As well as gaining 140 grain loading sites, the deal helps Marubeni to access more grain production sources in Brazil, Australia, Ukraine and the U.S.

Photographer: Ariana Lindquist/Bloomberg

A Gavilon Grain LLC dock stands at the Port of Duluth-Superior in Superior, Wisconsin. Close

A Gavilon Grain LLC dock stands at the Port of Duluth-Superior in Superior, Wisconsin.

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Photographer: Ariana Lindquist/Bloomberg

A Gavilon Grain LLC dock stands at the Port of Duluth-Superior in Superior, Wisconsin.

Energy is the smallest of Gavilon’s businesses, which also include fertilizer trading and storage. The energy unit trades crude oil, natural gas and fuels. The business operates storage capacity for 8 million barrels of crude, 10 billion cubic feet of gas and 500,000 barrels of refined oil products, according to Marubeni’s website.

Food accounted for 17.1 billion yen of Marubeni’s 205.7 billion of net income in the fiscal year ended March 31, while energy contributed 27.9 billion yen. Food profits are expected to jump to 30 billion yen this year, while energy will rise to 39 billion yen, the company said last month.

Marubeni, which in April received Chinese antitrust approval for the purchase, is in the process of fulfilling conditions that came with the approval to close the deal, the trading company said.

The approval, coming almost a year after Marubeni said that it agreed on the purchase, was given on the basis that the Japanese company and Gavilon continue to operate separate units for soybean trading in China so as not to limit competition.

To contact the reporters on this story: Yuriy Humber in Tokyo at yhumber@bloomberg.net; Ichiro Suzuki in Tokyo at isuzuki@bloomberg.net

To contact the editor responsible for this story: Jason Rogers at jrogers73@bloomberg.net

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