CHICAGO (Reuters) - Cargill Inc [CARG.UL] is buying a maker of natural animal feeds, the global commodities trader said on Tuesday, another in a string of deals to capitalize on rising demand for higher-margin natural foods and antibiotic-free meat and dairy products.
The recent push by privately held Cargill, including Tuesday’s deal for Iowa-based Diamond V, has centered on its animal nutrition and protein unit, with expansions in feed production and aquaculture and divestitures of its U.S. pork business and cattle feedlots.
Cargill and rivals like Archer Daniels Midland Co (ADM.N), Bunge Ltd (BG.N) and Louis Dreyfus Co [LOUDR.UL], known as the ABCD quartet of global grain trading companies, have moved to diversify amid a global grains glut that has weighed on margins and dragged profits.
“As populations grow, there’s growth in protein-based diets and feed is important to that,” Standard & Poor’s analyst Chris Johnson said. “They have a favorable long term view of the feed industry as a result and have been investing there.”
Cargill did not disclose terms of the Diamond V deal, but said it was among the five largest acquisitions in the Minnesota-based company’s 152-year history.
Among those deals were a $1.5 billion acquisition of Norwegian fish feed company EWOS and a $1.2 billion deal in 2008 for starch manufacturer Cerestar.
The acquisition of Diamond V, expected to close in January, is Cargill’s latest investment in its animal nutrition and protein segment, which has posted higher profit in five straight quarters and is a major focus of the company’s long-term growth strategy.
“We anticipate that we will continue to invest in this space,” Chuck Warta, president of Cargill’s premix and nutrition business, said in an interview.
Cargill invested in feed additive company Delacon in July, bought the animal feed business of U.S. farm cooperative Southern States in August and expanded feed milling in Thailand in September.
“This space of micronutrition and feed additives around the world, that’s about a $20 billion market,” Warta said. “Delacon and Diamond V are our initial investments into this.”
Cargill did not disclose how it would fund the acquisition, but it could take on debt to finance similarly sized deals in the future without risking its “A” rating on long-term debt because its debt-to-earnings ratio is low, Johnson said.
Diamond V, also privately held, does not disclose revenue. The deal includes Diamond V’s human health business Embria Health Sciences, which produces ingredients for dietary supplements.
Additional reporting by Anirban Paul in Bengaluru; Editing by Ben Klayman and Matthew Lewis