China conditionally clears Marubeni’s takeover of Gavilon

Chinese regulators gave a qualified green light to Japanese trading house Marubeni’s US$5.6 billion purchase of U.S. grain merchant Gavilon on Tuesday, imposing stiff conditions that highlight Beijing’s anxiety over food security.

The deal was agreed 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 the rapidly growing food importer. U.S. and European antitrust authorities had already cleared the transaction.

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In a posting on its website approving the transaction, the Anti-Monopoly Bureau within the Ministry of Commerce (MofCom) said that the merger may “eliminate or limit competition in China’s soybean importing market.”

As a result, MofCom 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.

The deal, which includes debt of around US$2 billion, would propel Japan’s fifth-largest trading house into the top standings of global merchants, giving it access to Gavilon’s 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 imports in 2010. And although Gavilon has historically done little international trade, the MofCom restrictions on intra-subsidy deals may temper some of the benefits of the deal.

Beijing’s approval was first reported by the Financial Times. A spokesman for Gavilon declined to comment on the report. Marubeni officials could not immediately be reached.

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 for rival trader Glencore’s US$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, first to end-November/early December and then later.

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. — Reuters

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