Louis Dreyfus, one of the world's top commodity firms, is in merger talks with smaller rival Olam International in what could extend Dreyfus' global reach and open up its closely held family ownership.
Olam confirmed on Friday it was in talks with Louis Dreyfus over possible cooperation, with a merger among the options, news that drove Singapore-based Olam's shares up as much as 9.2 per cent to a three-year high.
Louis Dreyfus, whose commodities arm generates some $35bn (£22bn) in revenue, dominates the flow of agricultural commodities worldwide together with rivals Archer Daniels Midland , Bunge Ltd and Cargill Inc.
The talks between Louis Dreyfus and Olam underscore sector consolidation as global players expand across commodities to take advantage of booming demand driven by a rising world population and fast-growing emerging economies.
"If there is a merger, they could take advantage of economies of scale and geographical locations. Olam is strong in Africa, Dreyfus is strong in the United States," said DBS Vickers analyst Ben Santoso.
"If you have a merger between these two, then they could easily rival the bigger competitors such as Cargill, Bunge or Archer Daniels Midland," he said.
The discussions may also reflect a trend for commodities firms to develop an industrial model spanning buying, processing and distribution, said Geneva-based analyst James Dunsterville.
"Many of the historical soft commodities traders are no longer technically traders but industrialists," he said. "I think one that is partly industrial and maybe wants to be more industrial is Louis Dreyfus."
Louis Dreyfus is the world's largest cotton and rice trader and ranks in the top three in orange juice, wheat, corn and sugar markets.
Olam's announcement of its talks came after a report in Les Echos on Thursday that said a merger with Olam was being considered by Louis Dreyfus as one growth option.
Like fellow French daily Le Figaro, Les Echos also said Louis Dreyfus was considering a listing of certain activities, which would be a milestone for the secretive family-owned firm.
The reports cited legacy issues as one reason for Louis Dreyfus to open up its shareholding, a view shared by analysts.
"There may be people in the family who want to know where the get-out clause is," Dunsterville said.
Former chief executive Robert Louis-Dreyfus died in July 2009 and passed on his majority stake in the group to a special trust, with remaining capital held by other family members.
City A.M. Reporter