Louis Dreyfus in Talks to Sell Equity Stakes to Key Partners

(Bloomberg) -- Louis Dreyfus Co. is holding talks with investors about selling equity stakes in the agriculture trader, potentially opening up the family-controlled business to outside capital for the first time in its 168-year history.

Chief Executive Officer Ian McIntosh said the company is seeking partners to buy equity and help it expand in fast-growing emerging markets, like China. While Dreyfus has traditionally dominated bulk commodity trading like sugar and cotton, profit margins in the business are shrinking. McIntosh’s strategy to revive growth is to push Dreyfus into business lines that are closer to the consumer.

Louis Dreyfus in Talks to Sell Equity Stakes to Key Partners

“We see our business evolving in this direction. We see regional partners as being the powerful way to leverage that growth story and we think the opportunity set is now,” McIntosh said in an interview in London. He declined to name any of the companies involved in the discussions.

People familiar with the matter said LDC has held early-stage talks with several trading houses in Asia with a global presence. The list includes some of Japan’s biggest trading houses, the people said.

LDC has also approached potential Chinese partners, such as Cofco Corp., China’s biggest food company, and its global trading arm, Cofco International Ltd., according to one person, who asked not to be identified discussing confidential matters.

A representative for Cofco Corp. wasn’t immediately able to comment and a spokesperson for its trading house declined to comment.

Fresh Capital

A major equity investment could bring fresh capital and new markets to LDC, which is trying to recover from a crisis last year that saw the departure of top leadership. Billionaire heiress Margarita Louis-Dreyfus squeezed the company for cash in 2018 and cemented her control by spending almost a $1 billion buying out family members. She’ll eventually need to repay a loan from Credit Suisse Group AG used to pay for the shares.

McIntosh, who took the top job in September, wants LDC to expand beyond its traditional trading business of sourcing, transporting and processing bulk agricultural commodities. Profit margins in the industry are falling due to better technology, weak prices caused by years of bumper crops and increased competition.

The company earned $355 million in 2018, a far cry from 2012 when profits topped $1 billion. McIntosh said the company can eventually return to those lofty earnings levels, but only through new lines of business and by going deeper into regional markets.

Louis Dreyfus in Talks to Sell Equity Stakes to Key Partners

“Can you get back to $1 billion? The answer is yes, absolutely yes. But not in the same way that we achieved that figure a few years ago,” he said.

His strategy is to expand in consumer-focused businesses, especially in Asia.

The company plans to invest in Leong Hup International, a Malaysian poultry producer that’s in the process of going public. It bought a stake in China’s Luckin Coffee Inc. and partnered to build a coffee roasting plant. LDC also has a joint venture to produce fishfeed at an oilseed plant in Tianjin, China.

“Finding local businesses and local entry points to support new developments in the industry are a very powerful way of furthering that value chain integration that we see,” McIntosh said.

That strategy contrasts with competitors, such as Glencore Plc’s agriculture chief Chris Mahoney, who believes the industry needs to slim down and it’s too expensive to invest in consumer-oriented food businesses.

McIntosh said LDC can increase profits and keep costs down through partnerships. He doesn’t expect the sector to consolidate through big M&A deals, but rather the exit or acquisition of smaller players.

“Diversification is a benefit and size clearly matters. That is becoming more the case as our business evolves. By size, I don’t just mean volume, I mean geographic coverage,” McIntosh said.

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