By Andy Hoffman, Javier Blas and Nicolas Parasie
Billionaire Margarita Louis-Dreyfus agreed to sell a 45% stake in the eponymous agricultural trader to an Abu Dhabi sovereign wealth fund, opening the storied family business to outside ownership for the first time to secure desperately needed cash for its owner.
Louis-Dreyfus, who controls more than 96% of the holding company that owns LDC, has been scrambling to raise funds after borrowing about $1 billion to buy out other family members and pledging some of her shares in the family business as collateral.
The agreement with ADQ should reduce some pressure from lenders including Credit Suisse Group AG. Until now, Louis-Dreyfus has repaid her debts by taking hefty dividends from the trading house, often larger than the annual profits, which had resulted in a drop in its equity value.
The deal confirms talks first reported by Bloomberg in September. Financial terms were not disclosed but the companies said at least $800 million of the proceeds from the sale would be invested into LDC. The money will go toward repaying a $1.05 billion loan from LDC to its parent company, the trader said in response to questions. The company had a book value of $4.5 billion as of June, after paying a $302 million dividend, most of which went to Louis-Dreyfus.
For ADQ, formerly known as Abu Dhabi Development Holding Co., acquiring a minority stake in one of the four largest traders of grains, oilseeds and sugar will help boost food security for the United Arab Emirates at a time when governments around the world are accelerating efforts to ensure they can feed their citizens.
While the fund owns large businesses spanning key sectors of the oil-rich emirate’s economy, including Abu Dhabi Securities Exchange and Abu Dhabi Airports, the Dreyfus deal will be its first major overseas investment. It has in the past year emerged as one of the most active sovereign dealmakers from the Gulf, strengthening Abu Dhabi’s food, energy and logistics security through a flurry of transactions.
Set up in 2018, it’s chaired by Sheikh Tahnoon Bin Zayed Al Nahyan, a member of Abu Dhabi’s royal family, and was in talks with banks earlier this year to bankroll its acquisition spree, Bloomberg reported. Its assets are now estimated at around $136 billion, according to the Sovereign Wealth Institute.
As part of the deal announced Wednesday, LDC has signed a long-term commercial supply pact for the sale of agri-commodities to the UAE.
It isn’t the first time that a state-owned investment firm has acquired an interest in one of the world’s largest agricultural commodities trading houses. Temasek Holdings Pte, a state-owned firm of Singapore, is the majority owner of Olam International, a coffee-to-cotton trader. In 2012, GIC Pte, the sovereign wealth fund of Singapore, bought a 5% stake in Bunge Ltd., becoming its largest shareholder. It later sold its stake.
For LDC, the sale caps a decade-long string of unsuccessful negotiations with others. Louis-Dreyfus discussed merging her agricultural trading house with Glencore Plc in 2011 but the talks with Chief Executive Officer Ivan Glasenberg, which went as far as Glencore performing due diligence on Louis Dreyfus, failed as both sides couldn’t agree on valuation.
Later, she tried a merger with Bunge, but the conversations never went beyond an early approach. Louis-Dreyfus also talked with Singaporean state-owned investment firms, at least twice approaching them to sell a stake, but in both occasions the buyer balked at the price.
Renewed efforts to find equity investors stalled earlier this year, but the pandemic and resulting food security concerns helped revive interest in LDC, which represents the ‘D’ in the quartet of the biggest agri-traders known as the ‘ABCDs.’ After several difficult years when profits plunged, the fortunes of Louis Dreyfus and its rivals appear to have turned around in 2020 as China has embarked on a buying spree of agricultural commodities, particularity corn, lifting margins.
Louis-Dreyfus, 58, inherited the family business after the death of her late husband Robert Louis-Dreyfus, who turned around the business in the early 2000s. The relations with her in-laws had been always tense.
LDC didn’t comment on whether a binding deal had been signed with ADQ, only that the sale is subject to customary closing conditions, including regulatory approvals. However, Louis-Dreyfus has walked away in the past after public announcements, including merger talks with Olam in 2010.
Rotterdam-based LDC has seen a series of management shakeups in recent years, including announcing on the same day in 2018 that its chief executive officer and chief financial officer would depart. Three-decade company veteran Ian McIntosh, who took over as CEO after those surprise resignations, retired in September and was replaced by Chief Operating Officer Michael Gelchie.
Credit Suisse advised Louis Dreyfus on the transaction and Rothschild & Co. advised ADQ.