TOKYO Marubeni Corp is in advanced talks to buy U.S. grain and energy trader Gavilon for about $5.2 billion including debt, a source close to the deal said on Tuesday, as Japanese trading houses expand an overseas buying spree to secure grain supplies.
The board of Japan's fifth-largest trading firm will meet as early as this week to discuss the offer, the person said, adding that Marubeni also needs to talk to its creditors to arrange finance. The source declined to be identified as the talks are private.
Japan's five big trading houses, or shosha, have been spending billions of dollars in recent years to buy natural resources, including copper mines and oil and gas producers on the back of a strong yen and a decade-long commodities boom.
Concerns about China grabbing more of the world's food supply have led them to expand in farm commodities, particularly in the United States and Canada. As well as securing domestic supplies, they are looking to position themselves to supply China's growing demand.
"Marubeni has been aggressive in expanding its business in the past few years against the backdrop of increasing grain demand in China and other countries," said Akio Shibata, president of Natural Resource Research Institute.
"Their move is aimed to take advantage of this global trend," he said.
If the deal is completed it would be the largest overseas acquisition by a Japanese trading house since Mitsubishi bought a 24.5 percent stake in the southern Chilean properties of Anglo American for $5.39 billion in November last year, according to ThomsonReuters data.
Gavilon, whose owners include George Soros and hedge fund manager Dwight Anderson, has a sizeable presence in key U.S. agricultural markets, boasting the third largest U.S. grains marketing network behind Archer Daniels Midland and Cargill.
A purchase of Gavilon would double Marubeni's annual grain trading volume to 40 million metric tonnes (44 million tons), Shibata said.
Gavilon had debt of $1.7 billion at the end of December, the source told Reuters last week. A Marubeni spokeswoman on Tuesday said that no decisions had been made and declined to comment further.
Japan was the world's sixth largest importer of wheat in the 2011/12 marketing year, taking 6.1 million tonnes, and was the world's largest importer of corn, purchasing 16.1 million tonnes.
Its trading houses have been buoyed in dealmaking by the strong yen and a 10 trillion yen ($125 billion) low-interest government loan scheme that is available to assist in overseas mergers and acquisitions of natural resources.
Marubeni President Teruo Asada told reporters on Monday that his company was interested in Gavilon, which began exploring a sale in January, because of its strong presence as a grains trader in the United States.
Grain importers have increasingly turned in recent years to the United States and Canada, which together account for more than a third of the world's wheat and corn exports, following disappointing harvests and export curbs by other producers like Argentina and Russia.
Marubeni has been pursuing global grain sales operations and has partnered in livestock and feed operations with China's Shandong Liuhe Group, China's largest farming corporation, according to the firm's website.
Gavilon also has a large footprint in the U.S. fertilizer market, an energy operation that includes 7 million barrels of crude oil storage and a large oil, grain and ethanol trading unit.
Marubeni may sell Gavilon's oil business should it complete the purchase, according to the source.
Marubeni shares rose 20 yen, or 3.8 percent, to 550 yen.
Rival trading houses Mitsui & Co and Mitsubishi Corp had been linked to Gavilon, but have said they are not in talks.
Industry sources had in recent months also identified Swiss commodities trader Glencore, U.S.-based Bunge Ltd and Singapore-based Noble Group as potential bidders.
(With additional reporting by Yuko Inoue in Tokyo and Soyoung Kim in New York; Writing by Aaron Sheldrick; Editing by Richard Pullin)