Marubeni's Gavilon Hunts for Grain-Trade Deals to Expand in U.S.

  • CEO Batchelder targets assets such as elevators in Montana
  • Valuations have not followed crop prices lower, CEO says

Gavilon Group LLC, the major U.S. grain trader controlled by Marubeni Corp., is on the hunt for deals to expand its crop buying, storing and hauling capacity into the U.S. West and South as new Chief Executive Officer Lewis Batchelder charts a path for growth amid a commodity rout.

The company, with origins that go back more than 140 years, will look for assets over the next few years including elevators and facilities that can load shuttle trains in states including Montana and the Dakotas to boost sales to California and exports through the West Coast, Batchelder said at Gavilon headquarters in Omaha on Tuesday. Gavilon also will look for terminals along the Mississippi River to ship crops through the Gulf of Mexico, he said.

“There will be opportunities for us to acquire assets,” Batchelder said in his first interview since becoming CEO on March 1.

Agriculture companies are fighting through a price slump that spurred three straight years of declines for corn, soybean and wheat futures and hurt profits for farmers, growing cooperatives, traders and processors. The rout has been followed by management changes at grain traders, including at Gavilon, The Scoular Co. and The Andersons Inc. in recent months. Cargill Inc., one of the biggest players in the industry, has scrapped its two-tier executive leadership in favor of a single management team following a decline in earnings.

Marubeni Ownership

Profits at Gavilon have trailed initial expectations since it was bought by Marubeni in 2013 for $4.6 billion including debt, in what was the largest takeover by the Japanese trading house. Marubeni CEO Fumiya Kokubu said in January last year that Gavilon hadn’t been integrated into the Tokyo-based company’s grain-trading operations as expected. That same month, Marubeni announced it would write down about 50 billion yen ($440 million) of goodwill related to Gavilon.

In February, Kokubu said during a call with analysts that “dramatic measures” would be taken because the U.S. subsidiary “continues to experience difficulty.” A few weeks later Batchelder took the helm of Gavilon following the departure of the former CEO, chief operating officer and vice president of its North American grains division.

“We have a strong parent who wants to invest and wants us to grow,” Batchelder said. Gavilon “is not for sale,” he said.

Marubeni shares in Tokyo rose 3.6 percent to 603.7 yen, the highest price since March 23. The Topix index rose 2 percent.

Growing Gavilon

Batchelder, who has four decades of experience in the grain industry including heading up Archer-Daniels-Midland Co.’s grain operations, said he will focus on growing Gavilon while also improving communication with its Japanese parent.

He said he doesn’t have a specific deal size in mind and plans to stick to businesses Gavilon knows best. The company doesn’t intend to enter processing or milling, but is open to joint ventures with companies that own such facilities to supply raw materials or market some of their products, he said.

Gavilon’s operations include buying and storing crops, selling grains and oilseeds to mills and processing plants and marketing ethanol byproduct dried distiller grain with solubles. It also sells crop insurance and bulk fertilizer.

As Batchelder looks for deals, he’s noticed that asset valuations have not followed commodity prices lower, but there seems to be less interest from foreign buyers in U.S. assets than a couple of years ago, he said, adding that Chinese bidders could be the exception. 

In addition to deals, the company also plans to grow by expanding its own footprint, Batchelder said. Gavilon has bought a parcel of land to build a new terminal in Louisiana, but the timing for the project has not been determined, he said. The trader will also work to increase efficiency by considering some asset sales, he said.

The grain-trading industry is “going to get more competitive, particularly if commodity prices stay at these levels,” Batchelder said.

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