January 27, 2022

By Lynda Kiernan-Stone, Global AgInvesting Media

As part of a reorganization, Japan’s Marubeni announced it has agreed to sell the U.S. grain business of its subsidiary Gavilon to Viterra, the Dutch unit of global giant Glencore, through a deal that Marubeni expects to be worth as much as $2.6 billion to $3.5 billion (300 billion  to 400 billion yen). 

Based in Omaha, Nebraska, Gavilon originates, stores, and distributes grains, oilseeds, feed, and food ingredients that it supplies to food manufacturers, livestock and poultry producers, ethanol producers, and soybean processors. Its asset network, which includes 105 grain storage facilities with a capacity of 345,447 million bushels, has access to major U.S. rivers, ports, and railroads, and has international operations in Mexico, Europe, South America, and Asia, along with minority stakes in two terminals in Washington State and Oregon. 

Marubeni acquired Gavilon in 2013 for $2.7 billion with a focus on meeting the intense demand for corn from China. At the time, the deal brought together Gavilon’s extensive U.S. network of elevators and infrastructure assets with the Marubeni trading desk, which was supplying China with 20 percent of its imported soybeans. 

But, over the ensuing years, Marubeni has posted a string of write downs totaling 120 billion yen (US$1 billion), leading to the company re-evaluating its grain business strategy and goals. 

“Our initial goal was to become a global grain major like Archer Daniels Midland Co. and Cargill by expanding trade volume, but the strategy didn’t work as bigger volume posed higher market risk,” Akira Terakawa, senior executive vice president, Marubeni, said at a news conference, adding that the initial price paid for the business was too high.

Shifting its focus, Marubeni stated that it still intends to enhance the ability of its grain business to meet demand in Asia, however, it intends to concentrate on the Japanese market. Based on this decision, Marubeni will be working to strengthen its grain handling operations in the U.S. northwest and its export capabilities in the Pacific Northwest (PNW) region.

The company also noted in a statement that in response to consumer health and wellness trends, it will focus on the handling of specialty crops, developing its processing and downstream businesses. As part of this strategy and reorganization, Marubeni will be transferring the eight grain elevators in the northern U.S. and equity interest in the JV grain exporter terminal business in the PNW to another of its subsidiaries – Columbia Grain International (CGI).

It also intends to increase its presence in the fertilizer business within the domestic U.S. market, with its Gavilon fertilizer business and its Helena Agri Enterprises business expanding their transaction volumes and sales regions.

Just as the divestment of Gavilon aligns with Marubeni’s shifting strategic goals, Viterra, which was spun out of Glencore in November 2020,  stated that the acquisition of the business aligns with its long-term strategy.

“The addition of Gavilon supports our long-term strategy of significantly increasing our presence in the United States, one of the major producing and exporting regions, which will further strengthen our global network,” said David Mattiske, CEO, Viterra Limited. “The combination of the Gavilon and Viterra origination businesses will enable us to provide more value and flexibility to our customers. We will be able to rapidly enhance our sustainable supply chains, provide higher levels of quality control and reliability, while creating exciting opportunities for our customers and employees.”

Akira Terakawa, senior executive vice president in charge of food, agriculture, and chemical operations with Marubeni, commented during an online news conference that Marubeni expects that the recent increase in grain prices will serve to boost the valuation of Gavilon’s assets, adding that the increased valuation won’t cover the losses in their entirety, but made note of the remaining fertilizer business. 

Marubeni also has a long-term plan to draw on the experience of human resources and know-how gained in the U.S. to eventually expand its agri-inputs business outside of the U.S.

“We look forward to welcoming the employees of Gavilon to the Viterra team, and further strengthening the successful business and commercial relationships Gavilon has built with producers and consumers,” said David Mattiske, CEO, Viterra. 

“This transaction demonstrates the continued support of our shareholders to execute on opportunities that deliver significant growth for our business, while maintaining a robust balance sheet,” said Peter Mouthaan, CFO, Viterra, who explained how Viterra intends to move forward financially, saying, “Funding for the agreed purchase price and a portion of the assumed working capital has been secured through the signing of a committed acquisition financing facility.”

“Funding for the remainder of the working capital will be financed by using proceeds from other committed financing facilities and cash on hand, including existing available undrawn committed credit lines amounting to approximately US $3.6 billion as of 31 December 2021.”

Given that all customary closing and regulatory approvals are secured, both parties expect the deal to close in the second half of this year. 

– Lynda Kiernan-Stone is editor with GAI Media, and is managing editor and daily contributor for Global AgInvesting’s AgInvesting Weekly News and  Agtech Intel News, as well as HighQuest Group’s Oilseed & Grain News. She can be reached at lkiernan-stone@globalaginvesting.com.

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