Acquisition part of agribusiness giant's global expansion drive
Chinese State-owned grain trader COFCO Corp announced it will buy the 49% of Netherlands-based agribusiness grain trader Nidera that it doesn't already own, a move that experts said on Wednesday highlights the agribusiness giant's global ambitions.
COFCO reached an agreement to buy the stake from Cygne BV, which will give the Chinese company full ownership of Nidera, COFCO said in a statement on its website on Tuesday.
The transaction, which is still subject to regulatory approvals, is expected to be completed in the fourth quarter, the statement said.
COFCO acquired the 51 percent stake in Nidera in 2014 for $1.5 billion, according to media reports. It didn't disclose what it will pay for the rest.
The Nidera acquisition is not the only deal by COFCO in the international agribusiness market in recent years. In 2014, Singapore-listed commodity trader Noble Group sold 51 percent of its agricultural unit to COFCO. In December 2015, Noble agreed to sell the rest of the unit to COFCO.
The latest deal comes amid a plunge in global commodity prices, including those of crops, which resulted in a reported loss for the Dutch grain dealer in fiscal 2015, its first in five years, said Ma Wenfeng, an agriculture analyst with Beijing-based consulting company Beijing Orient Agribusiness Consultant Co.
Ma said this could be the reason why Nidera accepted the offer.
Ma said the deal is also a milestone in COFCO's plan to expand into the global market, especially Europe and Latin America.
"Following the acquisition, COFCO is one step closer to the big four leading agricultural traders - Archer Daniels Midland [ADM], Bunge, Cargill and Louis Dreyfus Co [LDC]," Ma told the Global Times on Wednesday, noting that this will help the company build itself into an international brand.
It is also a move to concentrate its resources on developing COFCO's main business, said Jiao Shanwei, editor-in-chief of Zhengzhou-based grain portal cngrain.com.
While COFCO is making aggressive expansion moves in the global market, it's simultaneously streamlining its domestic operations.
The company stepped up efforts to slash unprofitable and obsolete activities and cut employees earlier this year, according to media reports.
According to a report on the website of the State-owned Assets Supervision and Administration Commission (SASAC) on June 13, COFCO plans to restructure or eliminate 20 percent of its subsidiaries in the next three years. It is targeting those that are irrelevant to its core business and don't make much profit.
"The move is in line with the goal of deepening State-owned enterprise reforms proposed by the SASAC in recent years," Jiao told the Global Times on Wednesday.
"Slimming down" is necessary, as a large bureaucracy and broad business scope have made it difficult for COSCO to improve its profit margins, experts noted.
For example, the revenues of COFCO totaled 405.4 billion yuan ($62.4 billion) in 2015, more than those of Bunge. It was No.4 after Cargill, ADM and LDC, domestic news portal jiemian.com reported on Wednesday.
However, in terms of profitability, COFCO still lags significantly behind its international competitors, said the report.
"How to compete with those international brands is a major challenge COFCO faces in the wake of the deal," said Jiao.
COFCO should strive to improve its "soft power" by becoming more efficient and better managed, Ma noted.
