Hartree in talks to buy major cocoa trader Touton, sources say

Global energy and commodities trader Hartree Partners, backed by Oaktree Capital Management, is reportedly in talks to acquire French agro-industrial firm Touton, which trades nearly 10% of the world's cocoa. This potential consolidation emerges amid a highly volatile global cocoa market, where historic high prices and illiquid futures trading are pressuring independent firms like Touton, as banks increasingly favor companies with deeper financial resources. For Hartree, which recently entered soft commodities, the acquisition would significantly expand its footprint in the sector, leveraging its substantial backing in a market facing unprecedented supply and financing challenges.

Analysis

Global energy trader Hartree Partners, backed by Oaktree Capital Management, is in discussions to acquire French agro-industrial firm Touton, a significant player controlling nearly 10% of the world's cocoa trade. This potential M&A activity is occurring amid extreme dislocation in the global cocoa market, characterized by record-high prices exceeding $12,000 per metric ton, driven by poor harvests in West Africa. The market is facing severe liquidity challenges, with banks reportedly hesitant to lend to trading firms following substantial futures market losses, and exchanges demanding large cash collateral. Despite Touton posting a significant jump in net profit to €130 million in the year to March 2024 from €17 million previously, banks perceive this as a one-off event and favor lending to entities with deeper financial resources. The move signifies a strategic consolidation trend where well-capitalized players like Hartree, which recently expanded into soft commodities, can leverage market stress to acquire established operators. For Touton, the sale represents a potential exit for its long-standing ownership in a market where capital access has become a critical competitive disadvantage for independent firms.

Key Decisions for Investors

• Investors should monitor other independent soft commodity traders, as the pressures facing Touton indicate a high probability of further industry consolidation, presenting both acquisition opportunities and significant solvency risks.
• The involvement of Oaktree Capital highlights a key theme of private capital being deployed to consolidate industries under stress; this suggests focusing on well-funded players in volatile sectors as likely long-term winners.
• Given the extreme volatility and liquidity issues in cocoa futures, investors should exercise extreme caution with direct exposure and instead assess counterparty risk for any firms, including banks, with significant ties to the physical cocoa trade.