Noble's Stake Sale Would Cap Record Agriculture Deal Spree

  • Number of pending, completed deals at a record high in 2015
  • Buyers undeterred by lower prices, seeking supply security

The number of agricultural deals has accelerated to a record this year as companies including Noble Group Ltd. and Glencore Plc seek to divest stakes in assets and buyers look beyond plunging prices to secure long-term access to food supplies.

Noble, Asia’s largest commodities trader, is talking to potential purchasers about offloading its 49 percent stake in Noble Agri Ltd., which has trading and processing businesses in regions including South America, Africa, eastern Europe, India and Australia. Glencore has said it plans to divest a stake in its agricultural business, while Margarita Louis-Dreyfus’s family trust, which controls Louis Dreyfus Commodities BV, is considering selling a minority stake in the trading house.

A total of 410 deals, worth about $32 billion, have been completed or agreed in agriculture this year, the highest number in at least 12 years, according to data compiled by Bloomberg. Activity increased even as prices for materials declined, with the Bloomberg Agriculture Subindex of eight globally traded crops falling 14 percent this year.

“The food thematic is very strong,” Belinda Moore, an analyst at Morgans Financial Ltd. said by phone from Brisbane. “All it takes is some bad crops somewhere or a weather event and soft commodity prices will be up strongly and we’ll be talking about food shortages and how countries are going to feed growing populations.”

The average deal premium in agriculture has risen to 41 percent this year from 27 percent in 2014, the data show. The value of deals in the sector last year rose to $66 billion, the highest since 2007.

Cofco Potential

Cofco Corp., China’s largest food company, is one of the potential buyers of the remaining stake in Noble Agri, according to a person familiar with the matter. Cofco already leads a group that owns 51 percent of the unit, which it bought for $1.5 billion.

“If there’s 1 billion people to feed, then it makes more sense to pay a premium to secure a food source,” Carey Wong, a Singapore-based analyst at Oversea-Chinese Banking Corp. said by phone. “In a situation where there’s an acute food shortage, you basically own the farm. That’s incentive enough.”

China has 21 percent of the world’s population with just 9 percent of its arable land, and an even lesser percentage of fresh water, according to Jefferies Group LLC.

Tumbling prices are also spurring dealmaking in the sector, according to Nobuyuki Chino, president of Continental Rice Corp., a grain-trading company in Tokyo. “Falling grains prices globally have eroded earnings of producers and traders, prompting some companies to sell their less-profitable agriculture sectors to others,” said Chino, who has traded grains including corn, rice and soybeans for almost four decades.

Diversification

Mitsubishi Corp. in August agreed to buy a 20 percent stake in Olam International Ltd. in two deals worth about $1 billion. Olam, among the world’s biggest traders of coffee and rice, is ready to deploy almost $2 billion on acquisitions to seize on lower agricultural commodity prices, Chief Executive Officer Sunny Verghese said in an interview in September.

Should Cofco acquire the balance of Noble’s agricultural unit it would allow the further integration of its trading operations, envisioned when Cofco bought its initial stake in Noble Agri and took control of Dutch grains supplier Nidera BV last year.

Large producers and trading companies are seeking to increase the diversification of their portfolios in part to tap demand from rising numbers of middle class consumers in developing economies, a factor that’s likely to drive continued dealmaking, according to Morgans Financial’s Moore.

“It’s about further product diversification across different commodities, further geographic diversification,” Moore said. “Being able to supply to the growth markets of Asia and Middle East, having that leverage and owning strategic assets is a very powerful argument to your customer.”

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