-Armajaro selling loss-making commodity trade arm to Ecom

Reuters

* Armajaro was co-founded by Anthony "Chocofinger" Ward

* Ecom's roots go back 150 years to cotton trading

* After deal, Ecom will rival ADM, Cargill in cocoa

By Marcy Nicholson

NEW YORK, Nov 11 (Reuters) - London-based Armajaro HoldingsLtd will sell its commodity trading arm to Swiss agriculturaltrader Ecom Agroindustrial Corp Ltd, creating one of the world'sbiggest physical cocoa and coffee dealers in the latest deal toroil this niche market.

The sale, announced in a statement from both companies onMonday, follows months of talks with several suitors and is thelatest in a series of deals that are transforming the trade andprocessing of coffee, cocoa and sugar across the globe.

The agreement marks the end of a 15-year foray into physicaltrading by Armajaro co-founders and majority owners RichardGower and Anthony Ward, who built the company into one of theworld's biggest cocoa trading houses. Ward's bold deals in cocoafutures earned him the nickname "Chocofinger."

The trading business reported a $7.5 million loss andnegative cash flow in its fiscal year to end-September 2012.

For family-owned Ecom, whose roots go back over 150 years tocotton trading in Spain, Armajaro Trading provides a vast globallogistics and storage network, and increases its presence incapital-intensive and high-risk cocoa and coffee trading.

"It moves us further down the path of being the leadingintegrated soft-commodity company," Ecom Chief Executive OfficerAndrew Halle said in the statement.

Combined with Armajaro, Ecom will compete with ArcherDaniels Midland Co and Cargill Inc in cocoatrading, and privately held Neumann Kaffee Gruppe in coffee.

Ecom's deputy head of cocoa and coffee chief, AlainPoncelet, will become CEO of the new company, and Mark Dendlewill be the chief financial officer. Both will retain existingroles within Ecom.

Gower and finance director David Tregar will remain asadvisers to the company to provide support during thetransition, the statement said.

News that Armajaro was looking to sell its physical tradingarm was first reported by the Financial Times on Sunday. Theterms were not disclosed.

The fate of a World Bank International Finance Corp (IFC)$55 million investment in Armajaro Trading last year was notclear, although sources said Ecom has a long-term relationshipwith the IFC.

CHALLENGING TIMES

Armajaro, which generated $3 billion in revenue last year,has faced challenges in the past year, with Gower forced toreturn as CEO following the abrupt departure of Andrew Stone inAugust after the company reported the full-year loss. It alsostarted a review of some of its cocoa operations.

Even so, the company still had ambitions to diversify lastyear. It set up a sugar desk and was close to buying a mid-sizedcotton merchant before pulling out of the deal in April.

Armajaro Holdings will continue to run its commoditiesfocused hedge funds under Armajaro Asset Management LLP.

Ward, runs the CC+ cocoa and coffee fund, which was down 6percent in the four months to April, according to an investorreport seen by Reuters.

The CC+ fund reports on a quarterly basis to its investorswith a three-month lag.

INDUSTRY UPHEAVEAL

The sale comes at a time of upheaval for softs merchants ascoffee and sugar futures languish near multi-year lows, and manyprocessors suffered squeezed cocoa margins after demand slowed.

"Margins have been crushed on the physical side, so I don'tthink anyone is really making a lot of money in cocoa thesedays," said one industry source.

The industry is also undergoing a period of rapidconsolidation.

Swiss-based Barry Callebaut AG bought the cocoabusiness of Singapore's Petra Foods Ltd to create theworld's biggest maker of industrial chocolate. ADM is in talksto sell its cocoa business to Cargill, and last month, top sugarmerchant Bunge Ltd said it might sell its loss-makingBrazilian sugar milling business.

Armajaro is light on processing assets compared with thosedeals, but Ecom will secure vast logistics expertise andrelationships with farmers from West Africa to Southeast Asia toPeru. Armajaro operates in nearly 30 countries.

COTTON ROOTS

Ecom, which reported more than $4 billion in turnover lastyear, was founded by Jose Esteve in 1849 as a cotton tradingfirm during the nineteenth century textile boom.

Its first move to diversify came in the 1930s, when itopened a coffee operation, according to its website. Thefamilies of four brothers own 94 percent of the company.

Ecom ranks itself one of the top three coffee merchants, oneof the world's largest coffee millers, and among the top fivemerchants in both cotton and cocoa.

In 2012, it bought 13 million 60-kg bags of coffee, thecompany said in a statement, equating to nearly 10 percent ofglobal production in the 2011/12 crop year.

Ecom said it bought 7 percent of the world's cocoa in 2012and places itself as one of the world's top 10 cocoa dealers,with a global grinding capacity of about 260,000 tonnes, afraction of the nearly 4 million tonnes of beans processed inthe 2012/13 crop year.

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