Cargill Inc., the agricultural commodities trader that’s the largest closely held U.S. company, said it’s looking to make acquisitions even as it focuses on expanding organically.
The agricultural producer and trader would “probably grow best” with 40 percent of its expansion coming from deals, Chairman and Chief Executive Officer Greg Page said in an interview at Bloomberg headquarters in New York yesterday. The Minneapolis-based company needs to grow at about 3 1/2 times the speed of global gross domestic product to fulfill the expectations of its owners, Page said.
“If you do that all organically, it’s going to be tough,” he said.
Cargill plans to spend virtually all of the capital it deploys in the year through May 2013 on organic growth. Spending will be lower than in fiscal 2012, when it rose to a record $4 billion, including the $2.2 billion purchase of French animal nutrition provider Provimi SA and acquisitions of a Central American meat processor and a German cocoa and chocolate processor.
“U.S.-based agribusiness companies are primarily looking outside the United States for future growth, either in key growing regions including South America and Eastern Europe, or in growing areas of consumption, particularly China,” Judi Rossetti, an analyst at Fitch Ratings in Chicago, said in an e-mail.
Cargill’s competitors have announced deals worth billions of dollars this year. Swiss commodity trader Glencore International Plc said in March it agreed to buy Canadian grain handler Viterra Inc. for C$6.1 billion ($6.2 billion). Japan’s Marubeni Corp. announced in May it agreed to acquire U.S. grain merchandiser Gavilon Group LLC for $3.6 billion.
Food companies have been the target of 447 deals announced this year with a combined value of $40.2 billion, according to data compiled by Bloomberg. There were 598 deals with a total value of $60.8 billion in 2011, the data show.
Cargill, which employs about 140,000 people around the world, was founded in 1865 by William Cargill. The company is still controlled by members of his family.
“For us to do a $5 billion to $6 billion acquisition for cash would be a stretch,” said Page, 61.
The company looks for “a reasonable mix of acquisitions” to bring in new personnel and assets to help Cargill balance its product mix and businesses in the northern and southern hemispheres, he said. It doesn’t have any significant acquisition prospects right now, Page said.
After an active 2012, it’s anticipated that Cargill will spend time integrating those acquisitions, according to Fitch’s Rossetti. Fitch has an A rating on Cargill’s debt with negative outlook, “primarily reflecting recently weak operating performance which led to an increase in gross leverage,” she said.
Standard & Poor’s Ratings Services on Aug. 15 lowered its outlook on Cargill to negative from stable while maintaining its A long-term credit rating. Holding on to that A rating and maintaining enough resources to allocate to the company’s various businesses are Cargill’s priorities, Page said.