Cargill guards private life in 150th year

When the largest shareholder in Cargill wanted out, management drew up a spreadsheet with 13 possible options.

One involved the world's biggest trader of agricultural commodities offering shares to the public, but that idea was quickly dismissed in favour of another transaction completed in 2011.

"It was the very first to come off," said Greg Page, Cargill's executive chairman.

Four years later, Cargill remains equally committed to the private-ownership structure that has defined the company as it approaches its 150th anniversary.

Executives say the US group will remain private for the foreseeable future, a decision that will shape not only Cargill but also the markets its touches. "The generation of family leaders we have today like Cargill being private," said chief executive David MacLennan. "I really enjoy being a private company and the benefits we get from being privately owned."

Minnesota-based Cargill is one of the world's largest privately held companies by revenue. It dwarfs many of its rivals in terms of size and the number of agricultural raw materials it trades. It processes chicken meat in Russia, delivers soyabeans to China, and works with some of the world's biggest food and beverage companies, making sweeteners for Coca-Cola.

The span of businesses requires massive amounts of capital of different durations. Cargill needs short-term financing for purchases of corn, soyabeans and cattle, and it makes longer-term investments in assets such as vegetable oil refineries, pig barns, ports and ships.

Its management must also work with a sixth generation of family shareholders, who are further removed from the day-to-day running of the business than their predecessors. The last family member to serve as chief executive, Whitney MacMillan, retired in 1995, and only one family member works full-time at the company.

As a private group, Cargill funds investments with cash and debt rather than issuing equity. This could limit its ability to make acquisitions even as some analysts predict a wave of dealmaking. Cargill's largest acquisition remains the $2bn purchase of Provimi, an animal nutrient company, in 2011.

The global flow of agricultural raw materials has historically been dominated by four firms, Cargill, Archer Daniels Midland, Bunge and Louis Dreyfus Commodities.

But Cofco, China's state-owned grains trader, has just spent $3bn acquiring controlling stakes in several foreign food trading houses, putting it in direct competition with the others

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"We are going to have the shareholders that we deserve . . . so we need to be proactive to get their emotional as well as their financial attachment to the business," said Mr Page. "It is a two-way street."

Cargill's total shareholders' equity - equal to assets minus liabilities - was $28.2bn in fiscal 2014. But some shareholders have previously struggled to turn their net worth into cash.

"You had a number of owners who were very wealthy on paper, but had difficulty getting mortgages because their assets were not liquid," said Bob Kohlmeyer, a retired Cargill executive.

This problem has been addressed at two pivotal moments in the company's history, helping to defuse discussions about going public. The first was the 1992 creation of the employee stock plan, which allowed family shareholders to tender 17 per cent of the company's shares for $700m, according to "Cargill: from commodities to customers," a history by Wayne Broehl.

The second moment was the 2011 deal to allow the company's largest shareholder, the Margaret A Cargill foundation, to diversify its holdings, which were heavily concentrated in Cargill stock.

Cargill spun off its 64 per cent stake in listed fertiliser company Mosaic and transferred $12bn in Mosaic shares to the foundation and other family shareholders. Cargill received $7bn in Mosaic shares which it used to pay down debt through exchanges with lenders.

The Mosaic deal met the foundation's needs without forcing Cargill to go public, said Benjamin Oehler, a former chief executive of Waycrosse, the family office for the Cargills and MacMillans. Mr Oehler added: "they were able to meet the liquidity needs of the family, I would think, for another generation."

Cargill's 17-member board now contains six family members, six independents and five directors from management. The company is allowed to reinvest 80 per cent of annual earnings back into the business, while the rest is paid as dividends.

That need to produce steady income for family members and inability to issue equity have also forced the board to think hard about which investments made sense.

Cargill sold a seed business in 1998, and then its steelmaking business in 2004 after concluding they would be consume too much capital. "To be so diverse that everyone gets a bit under supported is a mistake," said Mr Page.

Executives say the corporate structure serves the company well and is one of the reasons why Cargill has survived and prospered when many of its rivals have either gone public or been acquired.

"Each board meeting is like a shareholder meeting. You get immediate confrontation of views and discussion," said Bernard Poussot, the former chief executive officer and president of Wyeth, who was appointed a non-executive director in 2010.

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