Marubeni’s acquisition of Gavilon explained

Author: Ashley Lee | Published: 7 Jun 2012
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Marubeni’s $3.6 billion acquisition of Gavilon follows the trend of Japanese companies looking for assets in the US and Europe. But the company found the sale’s unusual auction format challenging.

Gavilon, the US’s third-largest grain merchandiser, was owned by three private equity funds, Osparie Special Opportunities, General Atlantic and Soros Fund Management. The funds acquired Gavilon in 2008 from ConAgra Foods for $2.8 billion. Marubeni agreed to pay $3.6 billion for Gavilon in addition to $2 billion in debt, reflecting approximately a third of its market capitalisation.

But Marubeni had to reconcile its decision-making process with the private equity firms’ format. Nobuhisa Ishizuka, the Tokyo-based Skadden partner who advised Marubeni in this transaction, said that it was challenging in terms of seller expectations, the speed at which private equity funds like to move and all the financial considerations around the exit.

Ishizuka added that cultural considerations played a part. “Marubeni is a smart and experienced company and there were very skilled legal and business teams on this deal,” he said. “However, they are a Japanese company and have a very careful and thorough decision-making process that takes time.”

However its timeline had to be meshed with that of the funds, which were running a competitive process and are used to dealing with speed and certainty.

Complexities also arose from the differing interests of the three sellers. The funds were selling the company’s upper-tier structure along with the holding company, so lawyers had to advise on a number of tax issues. Moreover, Ishizuka said that the interests of the different private equity funds were not 100 percent aligned around these issues.

Aside from format-related complications, the transaction was subject to US regulations. The Dodd-Frank Act, antitrust, commodities regulations and the Committee of Foreign Investment in the United States were some of the aspects examined.

The transaction will enable Marubeni to double its grain-trading capacity and give the company a foothold in the fertiliser and energy-trading businesses. More importantly, it will increase its access to the North American supply market, which will enable it to meet consumer demand, especially in growing markets like China.

“This transaction is emblematic of the trend we’re seeing of Japanese companies looking overseas to execute their global strategies,” Ishizuka said.

He predicted the acquisition would not be the only large acquisition by a Japanese corporate this year. While American and European corporates reel from the Euro crisis, Ishizuka expected further M&A activity in the energy, data and internet technology sectors and anticipates increasing interest in the consumer and food and beverages space.