Cargill confident after EC clears Degussa deal

By Anthony Fletcher

- Last updated on GMT

Related tags Food ingredients Mergers and acquisitions Degussa

Cargill has welcomed the EC's decision to approve its acquisition
of Degussa's food ingredients operations, claiming that the
decision will accelerate the company's focus on creating value and
growth for its customers.

In the short term, the approval means that Cargill and Degussa can now proceed with the necessary financial and legal transfers in order to complete the acquisition in the next few days.

"The decision by the EC significantly progresses Cargill's growth in the food ingredients arena and is consistent with our strategy of becoming the recognised global leader in providing food and beverage companies with innovative solutions that help them succeed,"​ said Warren Staley, Cargill chairman and chief executive officer.

"The Degussa food ingredients operations greatly complement our existing food ingredients business and create new opportunities for us to better support our customers in the quest to produce even tastier, healthier and more convenient foods."

Degussa's food ingredients operations have 2,050 employees in total with 1,500 in the texturant area and 550 in the flavour business. The addition will confirm Cargill as a major supplier of starches, hydrocolloids, soy proteins, emulsifiers, dairy and meat cultures, and give it a significant position in ingredients systems and blends and health promoting ingredients.

Degussa's texturant business has 33 locations - 19 of which are texturant production sites. Eleven of the production sites are in Europe, four in the Americas, two in Asia and two in North Africa.

"This is good news for the employees of Degussa's food ingredients operations as they will be joining a dynamic food ingredient company in which their expertise will be key to its future growth,"​ said Staley.

Degussa initially agreed to sell its food ingredients business for € 540 million back in October 2005. But clearance of the acquisition only came last week after a detailed Commission inquiry, which was set up following concerns over horizontal overlaps of the parties activities within the lecithin sector.

The Commission was aware that Cargill had only recently entered the markets for lecithin, on which DFI was already a major actor, and that the merger would remove effective competition.

In the course of the investigation however, the Commission found that, although barriers to entry are rather high, several producers from Brazil and India have been able to enter the markets due to their easy access to the raw material (non-GM soybeans) and their partnership with distributors established in Europe.

Some of these producers are in the process of establishing their own distribution networks in Europe. Since these new competitors are often also the suppliers of Cargill and DFI, the Commission has concluded that the merged companies will have very little scope to increase prices.

The EC was therefore satisfied that the new entity will continue to face sufficient competition. US authorities have already given their clearance for the deal.

Lecithin is mainly extracted from soybeans and used as an emulsifier by companies in the food industry such as chocolate manufacturers and bakeries, and to a lesser extent in other industries such as animal feed. The ingredient has a wide functionality beyond its emulsifying properties and carries a unique good-for-you image, thus making it a valuable commodity.

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