Chinese regulators approve Marubeni-Gavilon merger with stiff conditions

Chinese regulators yesterday approved with stiff conditions the $5.6 billion acquisition of US grain merchant Gavilon by Japanese trading house Marubeni Corp, as China now flexes its muscles while reviewing overseas deals.

Although the proposed acquisition was announced nearly a year ago, Chinese regulators took a long time to review the deal since the merged company would be a major supplier of soya beans and other grains to China.

In May 2012, Marubeni, Japan's fifth-largest trading house, offered to buy Omaha, Nebraska-based grain and energy trader Gavilon, for $3.6 billion and assume debt of around $2 billion, in order to become one of the world's largest grain trading companies. (See: Marubeni to acquire Gavilon Group for $3.6 bn)

The proposed deal, if completed, would be the biggest-ever acquisition by Marubeni and the, largest overseas acquisition by a Japanese trading house since Mitsubishi bought a 24.5-per cent stake in the southern Chilean properties of Anglo American for $5.39 billion in November 2011.

The deal was approved by the US and European regulators, but was awaiting a nod from Chinese antitrust authorities.

The Chinese approval came after its regulator last week approved the merger of commodities giant Glencore International and diversified miner Xstrata.

In a posting on the China's Ministry of Commerce's website, the regulator said that the merger may eliminate or limit competition in China's soybean importing market and wanted Marubeni and Gavilon to operate as separate trading units when selling soybeans to China.

The conditions also stipulate that both companies do not exchange market information, which otherwise would be seen by the Chinese authorities as uncompetitive behaviour and force it to act accordingly.

Gavilon, formerly known as ConAgra Trade Group, has one of the world's largest fertilizer distribution networks, as well as the third-biggest US grain-merchandising operation.

Gavilon deals in grains, oilseeds, oils and fats, dairy products, feed ingredients; renewable fuels, petroleum products, natural gas, natural gas liquids, and fertilisers.

It has around 320 million bushels of storage in the US, and handles about 20 million metric tons of grain annually. It is the third-largest grain handler in the US after Cargill and Archer Daniels Midland Co.

The proposed acquisition will propel Marubeni, which handles about 22 million metric tons of grain annually, as the largest exporter of US grains and oilseeds to China, beating Archer-Daniels-Midland.

China is the world's biggest importer of soybeans and the fast-growing buyer of corn.

China imported around 80 per cent or 58 million tons of soybeans in 2012, of which Marubeni accounted for 10.5 million tons, or about 18 per cent, making it the single largest overseas seller of soybeans to China.

Marubeni did not comment on the Chinese conditions but said that it is reviewing the approval.