* Merged groups must retain separate units for soy imports
* Deal shows Beijing resource worries, regulatory muscle
NEW YORK, April 23 Chinese regulators on Tuesday
gave a qualified green light to Japanese trading house Marubeni
Corp's $5.6 billion purchase of U.S. grain merchant
Gavilon, imposing stiff conditions that underscore Beijing's
anxiety over food security.
The deal was announced almost a year ago but has been held
up for months by Beijing's close scrutiny of the combined group,
which would have a leading role in supplying soybeans and other
grains to China. U.S. and European antitrust authorities had
already cleared the transaction.
In a posting on its website, the Anti-Monopoly Bureau within
the Ministry of Commerce said that the merger may "eliminate or
limit competition in China's soybean importing market."
As a result, the ministry said Gavilon and Marubeni would be
required to maintain separate, independent trading units when
selling soybeans to China, with strict firewalls to prevent any
exchange of market information. Marubeni would have to buy beans
from Gavilon's vast U.S. network at arm's length.
China, the world's top soy importer, wants competition for
soybean sales to ensure it is able to secure all the oilseeds it
needs to feed a growing middle class, according to traders.
Soybeans are crushed into soymeal that is used to feed livestock
The conditions imposed by China were surprising because it's
unlikely that Marubeni and Gavilon would be able to control
supplies or fix prices in such a large market, said Danny
Murphy, president of the American Soybean Association.
"By staying at arm's length, it takes away some of the
benefits for Gavilon and Marubeni," he said about the
conditions. "You'll lose efficiency and probably increase costs
for the companies they supply for."
Marubeni's $5.6 billion acquisition of Gavilon, an amount
that includes the assumption of around $2 billion of debt,
propels Japan's fifth-largest trading house into the top
standings of global merchants. Marubeni gains access to
Gavilon's vast grain storage network as well as a significant
domestic fertilizer and oil trading operation.
Marubeni is already the second-largest exporter of U.S.
grain to China, handling about a fifth of such exports in 2010.
Gavilon has historically done little international trade.
China's soybean imports could approach 80 million tons
within the next five to seven years, up from the record 61
million tonnes expected for the crop year that ends on Aug. 31,
China's expected imports this year represent nearly a
quarter of global soybean production.
"They don't want a monopoly at the raw material level," said
Mike Zuzolo, president of Global Commodity Analytics &
Consulting, about Chinese authorities.
Beijing's approval of the deal was first reported by the
Financial Times. A spokesman for Gavilon declined to comment on
the report. A Marubeni official in New York referred all
questions to the company's Tokyo headquarters.
SLOW AND CONDITIONAL
It is China's second conditional approval this month of a
major commodity deal, coming just days after authorities removed
the last hurdle to trader Glencore's $30 billion
takeover of miner Xstrata - contingent upon the sale of a major
Peru copper project and base metal supply commitments.
The delayed approvals and strict requirements highlight
Beijing's increased concern over the supply of vital raw
materials, as well as the growing might of its antitrust
authority, which has drawn criticism for its extended reviews.
Another Glencore purchase, that of Canadian grain handler
Viterra, was approved by Chinese regulators in December, nearly
nine months after the deal was first announced. The Marubeni
deal had been originally scheduled to close in September but was
pushed back repeatedly.
Senior Chinese officials, including Vice Premier Ma Kai,
have said China will improve the regulatory system governing
mergers and acquisitions by foreign companies as well as the
mechanism for anti-monopoly assessment of foreign investment.