Allenberg Cotton CEO Sees Dunavant Deal By Sep 30

NEW YORK-(FutureSource)--Major cotton merchants Allenberg Cotton Co. and Dunavant Enterprises said Thursday they are working on a merger agreement, the latest in restructuring actions that have shaken the industry in the last year. Allenberg and Dunavant are two of the three largest U.S. cotton merchants. Cargill Cotton, a division of Cargill Inc., is the other leading merchant.

Memphis-based Allenberg is the cotton arm of Louis Dreyfus Commodities Group and handles approximately 7 million bales of cotton a year. Dunavant, the largest privately owned cotton merchant in the world, handles more than 6 million bales of cotton annually. Dunavant is also based in Memphis.

The combining of the well-known world cotton merchants with long roots in the industry highlights ongoing consolidation in the market which has recently taken a hit, analysts said.

"The merger between Allenberg and Dunavant underscores the untenable situation that developed mostly as a result of extreme volatility from last year’s runaway markets," said Mike Stevens, analyst at SFS Futures in Mandeville, La.

ICE cotton futures trading was volatile in late February and early March 2008 amid an influx of speculative activity, which later prompted an investigation by the futures market regulator, the Commodity Futures Trading Commission. ICE expanded daily trading limits and raised margins during the volatile period. Many commercial entities were forced to buy back their short hedges as margin calls grew.

In late 2008, the fourth-largest U.S.-based cotton merchant Paul Reinhart Inc. filed for bankruptcy. Another large and long-lived cotton merchant, Weil Brothers & Stern decided to wind down U.S. and U.K. operations. Both merchants cited the events of March 2008 price volatility as contributing to their decisions.

"I am not sure we have ever seen anything like this- three major firms go out in one year," Stevens said.

The two firms hope to finish the merger in early fall.

"We’re hopeful to be able to reach a concluded transaction within this quarter," Allenberg Chief Executive Joe Nicosia said Thursday.

Allenberg and Dunavant have plans to combine both their U.S. and international operations, William B. Dunavant III, CEO of Dunavant Enterprises, told Dow Jones Newswires earlier Thursday.

"This merger will be a very positive event for the cotton industry and for both companies," Dunavant said.

Sharon Johnson, senior cotton analyst at First Capitol Group in Atlanta, said the deal could help some other parts of the industry.

"Smaller U.S. cotton merchants and farmers cooperatives stand to acquire some of the spillover merchandising business position amid the merger," she said.