By Yuko Inoue and Emi Emoto
TOKYO (Reuters) - Japanese trading house Marubeni Corp will buy U.S. grain merchant Gavilon for $3.6 billion, a landmark deal that may put it in pole position to benefit from China's booming demand for imported corn from the world's biggest supplier.
In the latest development to challenge the longstanding dominance of global grain giants like Cargill and Archer Daniels Midland, Marubeni confirmed its biggest-ever acquisition. It unites Gavilon's huge U.S. network of grain elevators and infrastructure - the country's third-largest - with a powerful global trading desk that already supplies a fifth of China's soybeans imports.
Marubeni said the acquisition will nearly double its grain trading volumes, extending an already wide lead over its Japanese rivals as it bets big that China's demand for imported corn will continue to surge ahead, surpassing Japan's 16 million metric tons (17.6 million tons) a year of imports in as little as three years.
"It's a move to complete a grains-supply chain of elevators, export terminals, freight handling and an end-user market, and the target is the growing market of China," said Akio Shibata, president of the Natural Resource Research Institute in Tokyo.
The U.S. grain trader has about $2 billion in debt, Marubeni said, which would take the total value of the transaction to $5.6 billion - slightly higher than the $5.2 billion price tag that had been reported in recent months. The acquisition would be partly financed by bank borrowing, the Japanese firm added.
The announcement confirmed an earlier Reuters report.
The deal is also a comeback of sorts for Dwight Anderson, whose Ospraie hedge fund was one of the most high-profile victims of the 2008 commodities collapse. He led a deal to buy ConAgra's trading division - renamed Gavilon - for about $2.8 billion including debt in early 2008, alongside investor George Soros and General Atlantic, a $17 billion private equity fund.
It is the largest overseas acquisition, including debt, in agriculture or energy by a Japanese company since Japan Tobacco bought British cigarette manufacturer Gallaher Group for almost $19 billion in 2006, according to Thomson Reuters data.
Marubeni, Japan's fifth-largest trading company, had been in advanced talks to buy Gavilon since early May. Gavilon is the largest transaction in Marubeni's history, the company said.
The company said it had no plans to sell off parts of Gavilon's operations, which also include a major U.S. fertilizer distribution network and a mid-sized energy trading desk that includes crude oil and natural gas storage facilities.
Those areas each comprise about a fifth of Gavilon's earnings, but were not seen by analysts as a particularly good fit with Marubeni's ambition in the agricultural markets.
Marubeni expects its global grain handling to rise to 55 million metric tons in the year to March 2013, when it adds Gavilon's 30 million metric tons to its business, coming closer in size to global grain giants like Cargill, Daisuke Okada, an adviser on food products to Marubeni President Teruo Asada, said at a briefing in Tokyo.
"We expect U.S. grains will fill future supply gaps in corn and other grains in China as output growth there may slow due to problems including water shortages," Okada said.
The company also said it expected the acquisition to lift its bottom line by more than $100 million from next year.
Acquiring Gavilon may help the trading house challenge Archer Daniels Midland as the biggest supplier of grains and oilseeds from the United States to China.
Thanks to its longstanding ownership of a large West Coast export terminal, Columbia Grain, and its 2008 deal to buy a set of northern elevators from AGP Grain, Marubeni's export business has boomed in recent years. A strategic pact with top grains importer Sinograin has helped open the conduit to China.
"This acquisition supports an ongoing strategic plan by Asian grain importers to better secure future grain needs via the merger and acquisition process," said grains analyst Mike Zuzolo of Global Commodity Analytics. "Realizing that better supply-chain management should better prepare these importers in their global sourcing needs."
Japan's trading houses, or "sogo shosha", have been scooping up assets around the world, targeting everything from shale gas to copper, as the world's third-largest economy competes with China, the second-biggest, for resources.
They're not alone. Swiss-based Glencore made its biggest leap into the grains market this year with a $6 billion agreed bid for Canada's top handlers Viterra Inc.
But investors don't seem to be counting on further deals in a sector where the four biggest firms - ADM, Bunge, Cargill and Louis Dreyfus, nick-named the "ABCD" - have built a sizeable lead over decades. Shares in The Andersons, a mid-sized trader and ethanol producer, are barely higher than they were early this year, when the deals first surfaced.
Gavilon is the third-biggest U.S. grain merchant with about 320 million bushels of storage capacity in the United States, just behind Cargill and ADM but ahead of global grain giants like Bunge and Louis Dreyfus.
"As part of a larger trading organization, Gavilon will be well-positioned to more efficiently connect supply with growing global demand," Gavilon President and Chief Executive Officer Greg Heckman said in a statement.
Marubeni's acquisition of Gavilon is unlikely to face any pushback from farmers and agricultural businesses, which have long been accustomed to the presence of Japanese grain companies in the United States.
"We anticipate minimal changes to our organization and operations," Heckman said.
A combination of Marubeni and Gavilon is seen by analysts as a good commercial fit, marrying Gavilon's presence in the U.S. Central Plains and Midwest with Marubeni's operations in the Pacific Northwest - the shortest U.S. sea route to Asia.
Morgan Stanley is advising the U.S. company on the transaction, Gavilon said. Nomura is advising Marubeni, people involved in the discussions have said.
Marubeni's rivals Mitsui & Co and Mitsubishi Corp had both been seen as potential bidders for Gavilon but decided not to pursue a deal.
Japan's outward bound mergers and acquisitions totaled $25.4 billion, including debt, this year to date, versus $15.1 billion for Chinese overseas purchases, according to Thomson Reuters data.
There were 245 overseas purchases or investments by Japanese companies compared with 101 for those from China.
Large trading houses in Japan have more than doubled overseas acquisitions, investing $7.7 billion so far this year, up from $3.5 billion in the same period in 2011.
Marubeni said in 2009 it signed a letter of intent with Sinograin, a Chinese state firm, to "work closely in coming years" to build state reserves and commercial grain supplies.
In the next marketing year that starts in October, the market is expecting a 60 percent jump in China's corn imports to around 8 million metric tons.
In part, the shosha may be betting that Japanese companies can make in-roads where China's state-owned traders fear to tread.
Late last year, Chinese state-owned trading house COFCO said it was seeking acquisitions to secure supplies in the United States, Australia, Russia and South America. But it has not advanced any major purchases, although it has sent teams to various countries for discussions, sources said.
Beijing-backed firms have shied away from attempts at large U.S. takeovers since a political furor scuppered offshore oil driller CNOOC's bid for Unocal seven years ago, analysts say.
Marubeni is already the second-largest exporter of U.S. grains to China, with soybean shipments surging five-fold since 2008, based on data from trade intelligence firm PIERS. Marubeni handled nearly 20 percent of China's soybean imports in 2010, according to its annual report.
Unlike Marubeni, Gavilon has not made deep inroads into China, having exported less than 10,000 metric tons of grains over the past two years, data showed.
Marubeni is the best-established shosha inside the U.S. grain belt. In 2010, it overtook Japan's national federation of farm cooperatives Zen-noh as the biggest Japanese exporter of U.S. grains and oilseeds, according to PIERS data, and accounts for more than a third of all shipments by Japan-based firms.
(Additional reporting by Soyoung Kim in New York, K.T. Arasu in Chicago and Risa Maeda in Tokyo; Editing by Aaron Sheldrick, Alex Richardson and Tim Dobbyn)