NEW YORK Chinese regulators on Tuesday gave a qualified green light to Japanese trading house Marubeni Corp's (8002.T) $5.6 billion (£3.67 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 and poultry.
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 August 31, Murphy said.
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 (GLEN.L) $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.
(Reporting By Jonathan Leff and Wanfeng Zhou in New York and Tom Polansek in Chicago; Editing by Kenneth Barry and Steve Orlofsky)