Reuters – COFCO Corp agreed to pay $1.5 billion to buy a 51 percent stake in Noble Group Ltd’s agribusiness, its second acquisition in less than two months as China’s largest grain trader seeks to strengthen its market position across the globe.
The two companies plan to form a joint venture, in which Noble will retain a 49 percent stake, that will link COFCO’s grain processing and distribution business in China with Noble Agri’s grain sourcing and trading arms, Noble (NOBG.SI) said on Wednesday.
The move will help China develop a powerful agricultural trading house along the lines of its Unipec oil trading business – one of the world’s biggest crude oil buyers – as it seeks to shore up supplies of animal feed grains to meet soaring demand for high-protein food.
“The primary motive of the consolidation going on in this industry is supply,” said Abah Ofon, an analyst at Standard Chartered Bank in Singapore. “It’s about guaranteeing supply where it is needed.”
For Noble, the deal adds volume to its trading business via COFCO and allows it to reduce debt. Noble’s stock – which jumped as much as 5 percent on Wednesday – has risen nearly 25 percent since March 4, when Reuters broke the news that COFCO was in acquisition talks with the company, adding about S$2 billion in market value.
China is witnessing a massive expansion in demand for grains such as soybeans and corn as the growing ranks of the middle class demand more meat in their diet.
COFCO bought a 51 percent stake in Dutch trader Nidera in late February to gain direct access to South American grain and oilseed supplies in a deal that valued Nidera at $4 billion including debt.
The latest deals follow a wave of consolidation in the world agribusiness sector that has shrunk the number of potential acquisitions for it to bulk up enough to compete globally with larger rivals ADM (ADM.N), Bunge Ltd (BG.N), Cargill Inc CARG.UL and Louis Dreyfus Corp LOURD.UL, known as the ABCDs.
SOURCES OF SUPPLY
The Noble acquisition allows COFCO to bring food supply volumes into China without having to go through the ABCD pipeline, and will allow it to better control costs.
“Noble Agri’s supply chain management system and origination capabilities complement COFCO’s logistics, processing, and distribution network in China,” COFCO chairman Frank Ning said in a statement.
Noble’s grains and oilseeds operations focus on South America, Europe and Asia. It operates three oilseed processing factories in Asia, and supplies grains, oilseeds, vegetable oil and by-products throughout the region from Singapore.
Noble, which is 14-percent-owned by sovereign wealth fund China Investment Corp. CIC.UL, also trades sugar, coffee and raw materials like iron ore. Its agricultural division is the smallest and generated $15.5 billion revenue last fiscal year, accounting for about 16 percent of the total.
Under the terms of the deal, COFCO’s $1.5 billion offer serves as an initial cash payment upon closing, expected in the third or fourth quarter. The final price will depend on a multiple based on Noble Agri’s year-end book value and its debt will be rolled into the joint venture.
A consortium led by China-focused private equity firm Hopu will join COFCO as minority investors in the acquisition and will hold a third of the investment vehicle that is making the purchase. Hopu is a private equity fund backed by Temasek and run by the well known Chinese banker Fang Fenglei, who Goldman Sach’s partnered with for its China joint venture.
The final price that COFCO pays will be equal to 1.15 times the audited book value of the agribusiness division – factoring in COFCO’s 51 percent ownership – for the financial year ending December 31, 2014, according to the Noble statement.
The audited book value was $2.8 billion at December 31, 2013, it said.
Noble’s agricultural division generated $15.5 billion revenue last fiscal year, accounting for about 16 percent of the company’s total.
COFCO and Noble still need to obtain regulatory and shareholder approval for the deal.
J.P. Morgan acted as sole financial adviser to Noble while Morgan Stanley advised the consortium that includes COFCO and Hopu.
(Additional reporting by Elzio Barreto in Hong Kong and Rachel Armstrong in Singapore; Editing by Richard Pullin)