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Cargill buys Norwegian salmon-feed company for $1.5 billion

August 18, 2015
Food & Drink
Cargill has a big fish story to tell.
 
The agribusiness giant agreed to buy a major Norway-based salmon feed maker for $1.5 billion, its second-biggest acquisition by value and one that bolsters its position in the fast-growing global fish feed business.
 
Minnetonka-based Cargill Inc., one of the world’s largest privately held companies, will buy EWOS from two private equity operations, Altor Fund III and Bain Capital Europe.
 
The deal announced Monday marks Cargill’s entry into salmon feed in a big way: EWOS, based in the Norwegian salmon stronghold of Bergen, is one of the leading global suppliers. Currently, Cargill’s aquaculture feed focus is on shrimp and tilapia, warm-water creatures as opposed to cold-water-dwelling salmon.
 
“This transaction, which is significant and the second aquaculture acquisition Cargill has announced in as many months, is a strategic investment in our long-term growth and evidence of our commitment to the growing aquaculture industry,” Cargill CEO David MacLennan said in a statement.
 
Only one deal has been bigger in Cargill’s history: the 2011 purchase of Provimi, an animal feed company in the Netherlands, for $2.2 billion. In July, Cargill announced a joint venture with Naturista to build a $30 million shrimp feed facility in Ecuador.
 
Aquaculture is relatively small compared to the world’s largest animal feed businesses — poultry, pork and beef. But it’s growing at a faster clip. Fish are critical to meeting growing worldwide demand for protein. And with wild fishery production at a plateau, supply growth must come from aquaculture.
 
“Farmed fish represents an opportunity for Cargill to expand its business into an increasingly important segment of the protein industry,” according to Fitch, which rates Cargill’s public market debt. “Fitch views the EWOS acquisition as a positive step in diversifying Cargill’s animal nutrition business.”
 
Fitch and Moody’s, another rating service, both said the deal is neutral to Cargill’s credit rating.
 
Both agencies said the recently announced $1.45 billion sale of Cargill’s U.S. pork operation to JBS should provide cash for the EWOS deal. The JBS sale requires regulatory approval, as does the EWOS deal, which is expected to close by the end of 2015.
 
“Pork is more cyclical, and there’s not a lot of growth potential,” said John Rogers, a Moody’s senior vice president. “Aquaculture arguably has a lower profit margin, but it’s much more positioned for growth, and it is more global.”
 
The fish feed industry is still fragmented, and Cargill isn’t among the top five global producers. But the EWOS deal should change that.
 
“We believe we will be in the top three with this partnership,” said Sarena Lin, president of Cargill’s Feed & Nutrition business, in an interview. EWOS accounts for about one-third of the world’s salmon feed business.
 
Salmon farming requires more technical prowess and more logistical support than other aquaculture; the fish are raised in big cages out in the ocean, requiring vessels to ferry out feed. Tilapia, on the other hand, are often raised in shoreside pens on rivers. Salmon also take twice as much time to raise as tilapia.
 
With the EWOS deal, Cargill picks up three manufacturing facilities in Norway, and one each in Chile, Canada, Scotland and Vietnam, as well as two state-of-the-art R&D centers in Norway and Chile. The company’s strong research — including on fish markets beyond salmon — was an attraction for Cargill, Lin said.
 
Cargill has fish feed facilities in the U.S., Mexico, China, Southeast Asia and India, and two research centers — one in Elk River and another in the Netherlands.
 
For EWOS, the Cargill acquisition will mark the second change of ownership in two years. Cermaq ASA, a Norwegian aquaculture company, sold its feed business in 2013 for $1.1 billion to the private equity firms. There was speculation at the time that Cargill was interested in bidding.
 
Cargill’s Lin said Cargill “was busy integrating Provimi.” The Dutch company had 7,000 employees when Cargill bought it, and today Cargill’s overall animal feed business has 17,000 employees in 37 countries. EWOS has 1,000 employees and produces more than 1.2 million metric tons of feed annually.
 
By Mike Hughlett
 

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