August 15, 2011 6:57 pm

Cargill in €1.5bn deal for Provimi

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Cargill is to acquire Netherlands-based animal feed company Provimi for an enterprise value of €1.5bn from the private equity fund Permira.

The deal further expands the portfolio of Minnesota-based Cargill, the world’s biggest agricultural commodities trader.

Cargill beat rival bids from China’s New Hope Group and from a Dutch consortium of the chemicals company DSM and animal feed company Nutreco. Both Cargill and Provimi said the key factor in the deal was the complementary nature of the two companies’ markets and product lines.

The Provimi purchase comes as higher incomes lead to more widespread meat consumption in emerging markets. As livestock producers industrialise in response to growing demand, they typically feed animals grain and soya meal, mixing vitamins and other nutrients as additives.

Provimi is known for having a strong “premix” additive business. The majority of Cargill’s existing animal nutrition business is “complete feeds” sold as a package to farmers.

“The area of their business that we’re particularly interested in is the more value-added piece,” Paul Conway, Cargill vice-chairman, told the Financial Times. “It’s premix, but it’s also about their R&D capability, their go-to-market capability. It’s their services as well as the product.”

Ton van der Laan, Provimi’s chief executive, told the Financial Times that the businesses’ markets were “largely complementary”. Provimi has operations in 26 countries, with particular strength in Latin America, Russia and India, while Cargill is stronger in developed countries and China.

Credit Suisse advised Cargill on the deal, while JPMorgan advised Provimi owners Permira. Cargill said it would fund the purchase with a mixture of debt and equity but declined to release any details.

Press reports had expected the deal to close at anywhere from €1.4bn to €2bn, putting Cargill’s offer on the low end of the scale. But people familiar with the deal said offers had remained steady since the last round of bids a week ago, and that recent stock market volatility had not depressed the price.

Permira bought a majority stake in Provimi in spring of 2007, right at the top of the buy-out bonanza, in a €1.3bn secondary deal from CVC Capital Partners and PAI Partners and later delisted it from the Euronext stock market.

The UK buy-out brought in new managers and turned the group, which started as a trading company for Dutch farmers in the late 1920s, into a pure-play animal feed provider for farmers.

Provimi has in the past few years disposed of some of its non-core assets, such as pet foods, which it sold to private equity group Advent International this March.

At the same time, the Dutch group expanded its share of revenue in emerging markets, such as through last year’s acquisition of Nassa, a swine and shrimp feed producer in Mexico, the fourth-largest animal feed market in the world.

Cargill’s balance sheet is heavy with cash. It earned a record $4.2bn in its most recent fiscal year, and in May it closed a $24bn deal to divest its stake in Mosaic, the US fertiliser company.

“One of the challenges for all businesses in this industry is reinvestment of capital,” said David Nelson, global strategist at Rabobank in Chicago.

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