Japan's Sumitomo Corp revealed ambitions to become a global player
in grain trading as it succeeded where rival Archer Daniels Midland failed in
buying control of an Australian cereals handler.
Sumitomo Corp - with a market capitalisation of $15.4bn, and whose operations range from making steel
sheets to aerospace systems - revealed that its purchase of the outstanding 50%
of Emerald Grain, the Victoria-based grain handler, was part of a scheme for
creating a worldwide presence.
"Sumitomo plans to expand its grain business globally as the
industry moves through a period of rapid and intense change," the company said.
The grain trading industry is amid a spell of global
consolidation encouraged by, besides the opening of Canada's sector, following
on from Australia, the growth of the former Soviet Union and South America as
'Help fund expansion'
Sumitomo's purchase of full control of Emerald comes four
years after it acquired a 50% stake, in a deal which added grain handling to
the Japanese group's existing storage and export assets in Australia.
Sumitomo at the time targeted growth in annual Emerald grain
volumes to 5m tonnes by 2015, a level which the handler has almost reached, currently
handling 4.5m tonnes a year.
Mike Winney, the Emerald chairman, and one of its founders,
said that underpinning further growth would require a cash injection which was
better achieved under Sumitomo's wing.
"As a 100% subsidiary of Sumitomo Corporation, [Emerald]
will be able to fund future growth and expansion and compete more effectively
in an Australian and Asian grain market that is now heavily influenced by
global companies," he said.
The deal "will give Emerald Grain access to the significant
capital needed to help fund expansion in grain accumulation capability and
Emerald added that Australian authorities had "been
consulted" over the deal, but had said that "they will not be examining the
transaction further" – a contrast to the stance taken over the $3.1bn attempt
by US-based Archer Daniels Midland to buy GrainCorp.
Australia's treasurer, Joe Hockey, in November blocked the
deal, on grounds that it would harm competition in the industry.
Although the size of the Emerald deal was not confirmed, it
is believed to value the group at about Aus$240m, considerably less than ADM's
bid for GrainCorp - and just below the Aus$248m threshold at which agribusiness
deals require approval by Australia's Foreign Investment Review Board.
Emerald vs GrainCorp
The deal is seen valuing Emerald, which had earnings before
interest, tax, depreciation and amortisation (ebitda) of some Aus$28m-30m last
year, at the same multiple of 8.5 times that ADM applied in its bid for GrainCorp.
GrainCorp reported underlying ebitda of Aus$395m for the
year to the end of September, on revenues of Aus$4.45bn, with crop receivals of
10.4m tonnes and total storage and logistic throughput of 23.8m tonnes.
Emerald has annual revenues of some Aus$1.6bn.
Mr Winney, and Emerald co-founders Mike Chaseling and Mick
Cattanach, will step down as part of Thursday's deal, although John Murray will
stay on as chief executive.
Mr Murray, a former chief executive of Australian feed group
Ridley Corp, and head of international operations at Elders, joined Emerald in
July last year.