Marubeni Corp., Tokyo, said on Jan. 26 it is selling the bulk of its Omaha, Neb.-based grain business of Gavilon Agriculture Investment Inc. to Glencore Plc’s Viterra Ltd., Rotterdam, The Netherlands, with the Gavilon fertilizer business restructured under Marubeni Americas.
“This change is an exciting time for Gavilon Fertilizer’s employees, suppliers, and customers,” said Brent Harlander, Gavilon Fertilizer CEO. “We have a world-class team of employees, and we expect to grow upon our reputation of premium customer service and customized crop nutrients, becoming an even larger player in the global fertilizer industry.”
“Gavilon Fertilizer’s role in the market-place is essential to the global supply chain,” added Tomomi Otsuka, Chief Administrative Officer, Gavilon Fertilizer. “Marubeni Americas looks forward to providing the corporate resources and capital for new growth projects, innovative products, and distribution assets in both the U.S. and international markets.”
Effective April 1, 2022, the Savannah, Ga.-based Gavilon Fertilizer announced the promotion of Ryan Burke to COO and Executive Vice President of Strategy; David Rizik to CFO; Ryan Solti as Treasurer; Matt Benda to Senior Director of Operations; and Otsuka as CAO. Also, effective immediately, Ron Cardenas has been hired as Executive Vice President of Human Resources and Compliance.
Since 1978, Gavilon Fertilizer has been a wholesale distributor and specialty-product manufacturer of crop nutrients around the world, offering product through over 75 terminals in the U.S., Mexico, Peru, and South Africa.
Viterra said it is buying the Gavilon assets for US$1.125 billion, and the deal is expected to close in second-half 2022.
Despite the sale, Marubeni said it is looking to enhance the ability of its grain business to meet demand for grain in the Asian market, particularly Japan. It is also looking to concentrate on reinforcing the handling of specialty crops, as well as developing its processing and downstream businesses.
As a result, it will retain eight of the grain elevators operated by Gavilon in the northern U.S., transferring them to another Marubeni subsidiary – Columbia Grain International LLC (CGI). In addition, part of the equity interest in a joint venture grain export business on the U.S. West Coast that is now held by Gavilon will also be transferred to CGI.
For the year ending March 31, 2021, Marubeni put Gavilon Agriculture’s consolidated profit before taxes at $300 million on revenues of $18.38 billion, up from a 2020 loss of $1 billion on revenues of $17.8 billion.
In the meantime, Glencore, the world’s largest commodity trader, has had a longstanding goal to enter the U.S. grain market and expand its mid-sized agriculture business. “The acquisition of Gavilon firmly establishes Viterra in the important U.S. grains and oilseeds markets,” said Glencore CEO Gary Nagle, in a Bloomberg report. “Viterra is now present in all major agricultural origination regions of the world. This will enable the company to take advantage of structural opportunities across global agricultural markets.”
Buying Gavilon will give Viterra a significant agriculture footprint after largely being concentrated in countries like Canada and Australia. Gavilon has assets throughout the Plains and Midwest, as well as indirect minority ownership in two West Coast port terminals, which offer a gateway to Asia.
The deal may spur questions about Glencore’s future plans for the agriculture business. The company sold almost half of the unit to the Canada Pension Plan Investment Board and British Columbia Investment Management Corp. five years ago, and has since rebranded it as Viterra – the name of a Canadian crop handler it acquired in 2012. Analysts have speculated that Glencore could either further sell down the unit or spin it off in a public listing.
Marubeni bought Gavilon for $2.7 billion in 2013 in hopes that it would allow the Japanese trader to expand its sourcing of corn and soybeans to better compete with other top global grain traders in Asia. However, the business suffered through a series of challenges including a U.S. drought, low commodity prices, and the U.S.-China trade war. Marubeni was forced to take multiple write-downs.
The trading giant sounded out buyers for Gavilon in 2019, Bloomberg reported at the time, although Marubeni denied that it intended to sell the unit.
Marubeni said it expects to get as much as 400 billion yen ($3.51 billion) from the sale to Viterra, when including the collection of loans. The decision was made after considering the “uptrend in the grain supply industry,” Marubeni said. The company saw an opportunity to transfer Gavilon’s grain business on “appropriate terms,” and assessed that it would be able to maximize its own consolidated asset value, it added.
The trading house expects a record profit this fiscal year through March, along with its domestic peers, as commodity prices surged. Cargill and ADM have recently reported their highest-ever annual profit.
Analysts said Viterra should expect scrutiny about the deal in the U.S. farm belt. The deal will further consolidate an industry at a time farmers are worried about a lack of competition among the few grain traders they can sell their crops to.
The White House has expressed concerns about concentration in agribusiness, although, so far, focusing on beef. With U.S. mid-term elections around the corner, politics could play a bigger role.
Viterra is already the world’s largest wheat trader, thanks to its investments in major exporting regions including Canada, Australia, Argentina, and the former Soviet Union.