Japanese trading company Sumitomo Corporation is understood to be working hard to find a distribution business to buy in Australia, with some questioning whether Elders could be in its sights.
In Australia, Sumitomo Corporation owns the West Australian-based fertiliser venture Summit Rural and sources say that the group is now looking to gain a presence in the distribution sector.
Elders is a listed company with a $1.78bn market value and operates in the area of rural services, insurance, real estate and home loans.
Shares have fallen to $11.45, from more than $12 at the start of this year, but the stock was only just above $6 in January last year.
Elders provides rural services such as farm supplies, real estate, finance, banking and insurance and has been created to be a one-stop shop.
For the year to September 30, Elders posted a $149.8m net profit, up 22 per cent from the previous corresponding period.
Its major competitor is Canadian fertiliser company Nutrien, which purchased Ruralco in 2019 through its Landmark business, and it is understood that it is performing strongly.
Sumitomo expanded into the fertiliser market in the 1970s. That market is now strong on the back of bumper weather conditions.
WA is one of the world’s largest producers of wheat and other grain crops and is known for its large-scale farming practices.
Japanese groups in general are believed to be showing interest in the Australian market, according to market sources.
Other possible targets for Sumitomo Corporation are Wesfarmers’ chemical business, Orica or Incitec Pivot.
But some believe buying a listed business would be a big exercise for the Japanese trading house and it may instead opt to pursue an acquisition in the private market.
One logical target in the private market is Delta Agribusiness Group, thought to be worth about $400m. The business has a presence nationwide and Australia’s Odyssey Private Equity owns a stake of between 20 per cent and 30 per cent.
Should Sumitomo be looking at Elders, a question is whether a deal would gain clearance from the Foreign Investment Review Board ahead of the federal election, as Elders is the last Australian-owned rural distribution business.
When Ruralco was sold to Nutrien, the understanding was that there were some sensitivities in connection to FIRB.
Globally, Sumitomo’s investment has been focused on the area of renewable energy.
Sumitomo Chemical is listed in Japan and is also a member of the Sumitomo Group. It holds a stake in Australian-listed chemicals company Nufarm.
However, the understanding is that it is Sumitomo Corporation on the hunt for acquisitions, not the listed Sumitomo Chemical subsidiary.
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