Agribusiness Consolidation Wave Reaches Second-Tier Companies

on Nov 8, 2012
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The Financial Times reported on 8 November 2012, that a potential deal between Armajaro Trading and Plexus Cotton could mark the start of a new wave of consolidation amongst second-tier agricultural commodities traders, on the back of the recent M&A (mergers and acquisitions) wave involving the largest companies in the industry.

**Leading Commodity Trading Houses in Consolidation Wave**
In the past few months, the global race for agricultural commodities trading power has triggered a trend of M&As in the sector, putting more of the world’s supplies in the hands of fewer companies. At a time when market intelligence is crucial, the industry’s main players are those increasing scale and diversifying geographically by swallowing or combining with rivals.

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An example of this trend is the Anglo-Swiss commodity giant, Glencore (LON:GLEN), which has recently purchased Canadian agribusiness Viterras (TSE:VT) for $6 billion (£3.7 billion). Another large company, the Japanese Marubeni (TYO:8002), swallowed American grain merchant Gavilon Group in a $3.6 billion (£2.2 billion) deal. Commodities trading house ADM (NYSE:ADM) also made a move towards the acquisition of a smaller rival. This week the company announced a $2.8 billion (£1.7 billion) takeover bid for Australian agribusiness GrainCorp (ASX:GNC).

**As Big Players Get Bigger Middle-Sized Rivals Feel the Heat**
As some of the world’s largest commodity trading houses become even larger, the pressure on their smaller rivals is also increasing. As a result, the rising wave of consolidation amongst the big market players is spreading to the industry’s second-tier companies. The series of mergers and acquisitions is now about to be continued by London-based Armajaro Trading. The middle-sized commodity trading house is set to buy Plexus Cotton Ltd., a Liverpool-based trader of the fibre with net assets of just under $17 million (£10.6 million).

!m[Commodity Trader Armajaro Set for Cotton Move, Other M&A Deals to Come in the Sector](/uploads/story/754/thumbs/pic1_inline.png)Armajaro, which focuses its trading operations on cocoa, coffee and sugar, has wooed Plexus for some time as part of its aim to diversify its agricultural commodity portfolio. While final details of the transaction are still being hammered out, now Armajaro is close to the deal it has reputedly been long chasing which will build up its nascent presence in the cotton market and stabilise income volatility typical in houses focused on a narrower band of commodities.

Armajaro’s move into cotton comes at one of the market’s most tumultuous periods as trading houses, growers and textile mills which supply the high-street retailers recover from last year’s unprecedented price surge and subsequent market collapse. For Plexus, on the other hand, the takeover by Armajaro will help it to achieve economies of scale at a time when it is competing against leading commodities trading houses including Glencore, Louis Dreyfus Commodities, Olam (SGX:O32) and Cargill.
**Other Second-Tier Companies to Follow M&A Trend**
According to analysts, the potential deal between Armajaro and Plexus is likely to signal the start of a string of consolidation deals amongst second-tier agricultural commodities trading houses. Industry executives believe that medium-sized companies, such as Swiss trading group Ecom Agroindustrial and French companies Touton and Sucres et Denrées, could be involved in future M&A deals in the sector.

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