May 8 (Bloomberg) -- Marubeni Corp., Japan’s biggest grain trading company, is in exclusive talks to buy closely held U.S. grain handler Gavilon Group LLC for about $5 billion, including debt, according to a person familiar with the situation.
The negotiations are in the final stages and a deal may be announced in the next several days, said the person, who declined to be identified because the talks are private. An accord may still fall through, the person said. A Marubeni spokeswoman and Jonathan Gasthalter, a spokesman for Gavilon at Sard Verbinnen & Co. declined to comment.
Buying Gavilon would allow Marubeni, whose shares rose today in Tokyo, to expand in the U.S., the world’s largest producer and exporter of corn. Glencore International Plc and Bunge Ltd. were among companies that had shown interest in Omaha, Nebraska-based Gavilon, according to people familiar with the matter.
“The Gavilon project would be very positive,” elevating Marubeni into the ranks of top five of global grain suppliers with volumes close to that of Cargill Inc. of the U.S., said Akira Kishimoto, an analyst with JPMorgan Securities Japan Co. in Tokyo. “The only risk is their method of financing.”
Marubeni rose 3.6 percent to 549 yen at 1:57 p.m. in Tokyo trading, extending its advance this year to 15 percent.
“I’m interested in Gavilon from the point of view that it’s a trader with very strong positions in the U.S. grains business,” Marubeni Chief Executive Officer Teruo Asada said yesterday. “I can’t say more than this at the moment.”
Gavilon -- whose largest investor is Ospraie Management LLC, the commodities hedge-fund firm founded by Dwight Anderson -- is the third-biggest U.S. grain merchandiser. It owns storage bins, railcars, trucks and containers used to ship commodities globally, according to its website. It also runs energy-trading and fertilizer-distribution businesses.
The group hired Morgan Stanley to explore strategic alternatives, a person familiar with the matter said Jan. 20. Mitsubishi Corp., which made an initial approach to buy Gavilon in March, according to a person familiar with the matter, isn’t in talks to buy the company, Chief Financial Officer Ryoichi Ueda said today.
Tokyo-based Mitsui & Co., Baar, Switzerland-based Glencore, White Plains, New York-based Bunge and Singapore-based Wilmar International Ltd. also have shown interest, people with knowledge of the matter said March 6.
“The fact that there’s been widespread global interest in the assets is little surprise,” said Steve Hansen, a Vancouver-based analyst at Raymond James. “There is all kinds of debate about what these assets are worth.”
Glencore, which in March agreed to buy Canadian grain-handler Viterra Inc. for C$6.1 billion ($6.1 billion), expects Asian consumption to drive annual growth of as much as 3.5 percent in global grain and oilseed demand. Mitsubishi CEO Ken Kobayashi said April 18 that growth in food demand in line with expanding populations and incomes in Asia will make it one of the key businesses for Japan’s biggest commodity supplier.
“The purchase would put a lot of distance in grains between Marubeni and other trading houses” in Japan, said Jiro Iokibe, an analyst with Daiwa Securities Co. in Tokyo.
Marubeni is due to process 25 million metric tons of grain in the year ending March 31, 2013. Mitsubishi plans to double its volumes to 20 million tons by 2015.
Marubeni could sell some of its infrastructure and machinery assets to help buy Gavilon while preserving current debt levels, JPMorgan’s Kishimoto said. If Marubeni buys Gavilon without selling new shares or selling assets its ratio of debt to equity may rise to 2.3 times, which is “manageable,” he said.
Marubeni has net debt of $23.1 billion as of March 31, equivalent to 2.08 times its equity, according to data compiled by Bloomberg. The ratio for Mitsubishi’s $48 billion net debt is at 1.04 as of Dec. 31.
“Even if we make a big acquisition, I’d like to have the ratio at 1.8 times,” Marubeni’s Asada said in an interview yesterday, referring to the debt-to-equity ratio.
Contracts to insure Marubeni’s debt from non-payment fell 6 basis points to 279 as of 9:53 a.m. in Tokyo, according to CMA data. That’s on course for the biggest one-day decline since April 26, the data show.
Were Mitsubishi to join Marubeni’s bid and take a stake in Gavilon the debt burden would ease, Kishimoto said. Still, the chances that Mitsubishi would be happy with a small minority stake or of Marubeni willing to share the U.S. assets are “low,” he said.
Gavilon traces its roots back to Peavey Co., acquired by ConAgra Foods Inc. in 1982. Ospraie, Soros Fund Management LLC and private-equity firm General Atlantic LLC bought ConAgra Foods Inc.’s trading and merchandising unit in 2008 for about $2.75 billion including debt. Gavilon has about 2,000 employees in 300 locations on six continents, it said in a March 7 statement.
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