China's COFCO to pay $1.5 billion for stake in Noble's agribusiness

By Naveen Thukral and Michael Flaherty

SINGAPORE/HONG KONG (Reuters) - COFCO Corp agreed to pay $1.5 billion (910 million pounds) to buy a 51 percent stake in Noble Group Ltd's agribusiness, its second acquisition in less than two months as China's largest grain trader seeks to strengthen its market position across the globe.

The two companies plan to form a joint venture, in which Noble will retain a 49 percent stake, that will link COFCO's grain processing and distribution business with Noble Agri's grain origination and trading business, Noble (SES:N21) said on Wednesday.

In a unique deal structure, COFCO's $1.5 billion offer serves as an initial cash payment upon closing of the deal, expected in the third or fourth quarter. The final price that COFCO pays will be equal to 1.15 times the audited book value of the agribusiness division - factoring in COFCO's 51 percent ownership - for the financial year ending December 31, 2014, according to the Noble statement.

The audited book value was $2.8 billion at December 31, 2013, it said.

The deal also includes the assumption of Noble Agri's $2.5 billion in net debt, which allows Noble Group to take that liability off of its books.

The move follows COFCO's purchase of a 51 percent stake in Dutch peer Nidera in late February to gain direct access to South American grain and oilseed supplies in a deal that valued Nidera at $4 billion including debt.

It also comes after a wave of consolidation in the world agribusiness sector has shrunk the number of potential acquisitions for COFCO to bulk up enough to compete globally with larger rivals ADM (ADM.N), Bunge Ltd (BG.N), Cargill Inc (CARG.UL) and Louis Dreyfus Corp (LOUDR.UL), known as the ABCDs.

"There is a lot of consolidation going on in the agricultural sector," said a Melbourne based commodities analyst, who was not authorised to speak on the record. He cited Japanese trading houses as active buyers of origination businesses. COFCO's deal is "a sign of more things to come" he said.

For COFCO, the acquisition allows the company to bring food supply volumes into China without having to go through the ABCD pipeline, and will allow it to better control costs. For Noble, the deal adds volume to its trading business via COFCO.

"Noble Agri's supply chain management system and origination capabilities complement COFCO's logistics, processing, and distribution network in China," COFCO chairman Frank Ning said in a statement.

Shares in Noble (SES:N21) jumped as much as 5 percent in early trading in Singapore, outpacing a 0.3 percent gain in the benchmark Straits Times Index (.FTSTI).

Noble's stock has risen nearly 25 percent since March 4, when Reuters broke the news that COFCO was in acquisition talks with the company, adding S$1.98 billion in market value.

Noble's grains and oilseeds operations focus on South America, Europe and Asia. It operates three oil seed processing factories in Asia, and supplies grains, oilseeds, vegetable oil and by-products throughout the region from Singapore.

Noble, which is 14-percent-owned by sovereign wealth fund China Investment Corp. (CIC.UL), trades sugar, coffee and raw materials like iron ore. Its agricultural division is the smallest and generated $15.5 billion revenue last fiscal year, accounting for about 16 percent of the total.

A consortium led by China-focused private equity firm Hopu will join COFCO as minority investors in the acquisition and will hold a third of the investment vehicle that is making the purchase.

Noble's agricultural division generated $15.5 billion revenue last fiscal year, accounting for about 16 percent of the company's total.

COFCO and Noble still need to obtain regulatory and shareholder approval for the deal.

J.P. Morgan acted as sole financial adviser to Noble while Morgan Stanley advised the consortium that includes COFCO and Hopu.

(Additional reporting by Elzio Barreto in Hong Kong and Rachel Armstrong in Singapore; Editing by Richard Pullin)