Sugaronline Friday Editorial - We’re All Going to Hell by Meghan Sapp
Published: 11/11/2011, 12:42:00 PM
The European Commission hasn't taken too keenly to the idea of Südzucker taking control of ED&F Man.
While the world watches in amazement as “Italy’s answer to Rasputin” exits stage left, there has been talk, especially on BBC Radio, that Italy may be run from Brussels, at least for the moment. Considering how little this sudden shift has stirred the Euro bond markets, one might think that there’s little going on here other than a pantomime.
Yet there really is something quite interesting going on in Brussels. They’ve decided to launch a…wait for it…in-depth probe into the possible purchase of 25% minus one share of ED&F Man by Südzucker for $255 million.
The deal originally announced with fanfare back in May that would see a desperately needed capital infusion into the world’s oldest sugar trader while offering the world’s largest sugar producer better access to other commodities and a global trading platform now must cool its heals until March 23 to see if the European Commission’s competition authorities will allow such a deal to move forward.
It seems that the two companies understood that there might be competition concerns about this deal, that though only paper is only a minor share actually becomes a controlling share thanks to also acquiring veto rights. As a result, they offered up some ‘concessions’ to the competition watchdog in order to let the deal go through, but those concessions don’t seem to have done the trick.
There’s still quite a laundry list of concerns left even after those concessions have been considered. Evidently the sugar markets of Greece and Italy, who over the course of several years of difficult reform have lost much of their domestic sugar industries, would begin to look like a monopoly if Südzucker really were in control of Man. Then there’s the fact that Man controls a good chunk of Europe’s raw sugar imports, and owns minority and majority shares in raw sugar refining.
Let’s not even get started on the molasses issue. Man is, after all, the world’s largest marketer of molasses.
This minor hiccup in the giddy-up of Südzucker’s international expansion plans poses some interesting possible outcomes. The company was recently identified by Rabobank as one of the few who was likely to survive the next round of sugar reform post-quota relatively unscathed. As the largest sugar producer in the world—though not by as large of a gap as they used to be as Cosan continues to grow—and the fact that half of the company’s income is diversified away from sugar in fruit juices and ethanol makes it a pretty good contender for survival. The fact that the company already has extensive supply agreements with Mauritius was tipped as a key to continued future dominance in the European sugar market.
So it’s not such a wonder that the European Commission was just a wee bit worried about the Man takeover.
But it’s not just Man that Südzucker wants. They want more, and likely expect to get it. Just two weeks ago the company’s CEO said that they were looking for acquisitions outside the EU, acquisitions that don’t have a price limit. Now there’s an invitation for anyone looking to quickly clear out some borderline mills, but one would think that if the company were truly serious about said acquisitions, they would have done something by now.
After all, the company was rumoured to be looking around Brazil several years ago hunting for an acquisition fitting its nature and global stature but it was deemed that the facilities available for purchase didn’t exactly fit in with transparency requirements when it came down to how the books were done. Undoubtedly the company would also like to dabble in some African sugar production like AB Sugar has done, but having already taken Illovo, that only leaves Tongaat Hulett left in the category of the ‘easy’ kind of Africans, but Tongaat doesn’t seem interested in selling out to some new European colonial masters. That leaves a lot of sugar production with books in similar or worse shape than family-owned Brazilians mills.
So where oh where does that leave poor Südzucker, especially if the EC gives the ‘no can do’ come March 23? They could buy out their Mauritian suppliers, of course, which would significantly increase interest in attending corporate retreats but might not help solidify the country’s position. If it works quickly, it might be able to start a bidding war with the Thais for Maryborough over in Australia. If that becomes the case, it’s a good thing they’ve said that acquisitions would have no price limit.
And with that, we leave our dear readers with what is probably the most apt analysis of all. If Südzucker doesn’t get its way, we may well all be going to hell.
The English are the policemen.
But, in hell;
The English are the cooks.