Louis Dreyfus, the French family-owned commodity trader, is in merger talks with Singapore-listed rival Olam International to create the world's third-largest agricultural trader.
Olam announced the news on Friday and said the two companies were discussing “a possible business collaboration which may take the form of, among others, a merger.”
The combination of the two companies would create a company with an estimated market value of $15bn and it would be the biggest trader in commodities including cotton, rice, coffee, and a formidable presence in cocoa, wheat, corn and oilseeds.
Olam, which has a market capitalisation of around $5bn, said that the discussions were “still preliminary” and cautioned that the talks could collapse without a deal.
If the merger goes ahead, it would create a trader small in size only to Cargill and Archer Daniels Midland.
To double profitability
The company, in which Singapore’s sovereign wealth fund Temasek Holdings holds a stake of about 14%, is headed by India-born Sunny Verghese.
Verghese has promised to double the size and profitability of Olam over the next three years, moving the company from its role of pure trading into processing and production facilities. Recently, it has been investing in farms in New Zealand.
Louis Dreyfus is exploring an initial public offering of some of its businesses, according to people close to the company.
The radical review of ownership comes barely a year after the death of Robert Louis-Dreyfus, the heir to the 150-year-old commodities house who made his own fortune as a serial entrepreneur. The talks are at a very early stage and the family members may decide against a sale.
The French group made $34bn in revenues last year, twice as much as its sales in 2006. Executives at rival trading houses believe that it could be worth about $10bn-$11bn.
Move into production assets
Like Olam, Louis Dreyfus is also trying to move beyond its traditional role as a pure trader, a business with huge sales but razor-thin profits, and to invest in more profitable, but capital-intensive, production assets.
Louis Dreyfus, led by Serge Schoen since 2005, has said its priority is to play a role in the consolidation of commodity trading in the Americas, but it also wants to “materialise” its Asian ambition and “seize growth opportunities in the Middle East and Africa”.
Over time, it says that “trade in agricultural products will increase, as the imbalance between regions of supply and regions of demand is expected to widen”.