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Billionaire Margarita Louis-Dreyfus finds a costly escape from debt drama

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The coronavirus pandemic has spurred countries to increase purchases of crop commodities, driving up prices of products like wheat and helping to boost profits for crop traders like LDC.

New York

MARGARITA Louis-Dreyfus suddenly became a key shareholder in one of the biggest commodity traders in 2009. She then spent most of the next decade locked in battles with her late husband's family, fights that left her in sole control of Louis Dreyfus but desperate for cash to repay the debt she accrued along the way.

Ms Louis-Dreyfus, 58, has announced a way out of the squeeze, with a deal to sell 45 per cent of the eponymous trader to an Abu Dhabi sovereign wealth fund that should raise enough money to cover her debts.

By keeping control, the Russian-born heiress can still make good on goals she outlined in a 2012 interview: continuing husband Robert Louis-Dreyfus's work and keeping the company named after the family.

But it has come at a price - and not just the billions of dollars of deals and debt over years of feuding with her French in-laws. Ms Louis-Dreyfus bought out family members at relatively high valuations as she increased her stake from just over 50 per cent when her husband died to the 96 per cent she currently holds.

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While the price of the Abu Dhabi sale wasn't disclosed, people familiar with the matter said it was roughly based on the company's book value. That suggests it's likely to be lower than the price at which Ms Louis-Dreyfus consolidated her stake.

The agreement with Abu Dhabi's ADQ caps more than a decade of upheaval that began when Robert, the great-grandson of French founder Leopold Louis-Dreyfus, died of leukaemia 11 years ago at age 63.

Ms Louis-Dreyfus's era has transformed what was once a staid and secretive family-controlled grain merchant into a company that will now open up its capital to an outside shareholder for the first time in its 169-year history.

It's a story of high-pressure deal-making and backstabbing that has pitted a French establishment family against an heiress backed by some of the most powerful names of the Zurich banking clique.

When Ms Louis-Dreyfus inherited the stake in Louis Dreyfus Company's (LDC) holding company, it was a golden period for trading: the company was making hundreds of millions of dollars and operated in real estate, forestry and US energy trading, in addition to the eponymous agriculture business.

Soon after her husband died, she began moving to dictate business strategy, clashing with the executive he had left in charge of the conglomerate, Jacques Veyrat.

Mr Veyrat, an ambitious Frenchman moulded in his country's Grandes Ecoles, made a proposal to merge the agricultural business with an up-and-coming rival called Olam International.

Olam was smaller, but had an advantage: it was listed in Singapore, giving the Louis-Dreyfus family an easy way to cash in if they wanted to after a merger. Ms Louis-Dreyfus killed the talks, and in 2011, Mr Veyrat left the company.

"It was about protecting his children, his grandchildren, his great-grandchildren," Ms Louis-Dreyfus told Bloomberg in 2012, referring to her husband.

Almost immediately, the rest of the Louis-Dreyfus family put some of their stakes up for sale. Under a deal put in place by her husband years earlier, Ms Louis-Dreyfus was forced to buy the shares at a price determined by the company's net worth and profitability. Coming in the boom-years of the commodities super-cycle, that meant paying top dollar for the shares.

Despite big dividends, Ms Louis-Dreyfus needed cash quickly to buy the shares. So she started to sell assets, but that only got her so far. The in-laws continued to tender more and more shares and with the profits of the agricultural business declining, Ms Louis-Dreyfus had no other option but to take on debt.

She borrowed more than US$1 billion from lenders including Credit Suisse Group and pledged some of her shares in LDC against the debt.

Ms Louis-Dreyfus also had to face-off with other family members in court over how much she should pay for the stakes she was obligated to buy. In the end, legal settlements were reached after months of wrangling.

At the same time, the company's core business of trading foodstuffs from cotton to sugar and rice was struggling. Annual net income peaked above US$1 billion in 2010 but soon fell to less than half that as bumper crop harvests and oversupply curbed the price volatility that traders crave.

As larger rivals such as Cargill Inc and Archer-Daniels-Midland Co shifted away from being pure trading businesses into things like food ingredients, LDC was left behind. An investment in Luckin Coffee ended in disaster when it was revealed that China's would-be Starbucks rival had likely engaged in accounting fraud.

The company has also seen near-constant leadership turnover during Ms Louis-Dreyfus's tenure as controlling shareholder and chairwoman.

Michael Gelchie, who took over as chief executive officer in September, was the seventh person named to the job in eight years. In 2014, Ms Louis-Dreyfus named former American football star Mayo Schmidt to the top job, only to announce weeks later that he wouldn't take on the role after the two sides failed to agree on details.

Amid the executive upheaval, dwindling profits and looming debt, Ms Louis-Dreyfus began looking for an equity partner that could offer some much-needed cash.

In 2019 and into early 2020, bankers from Credit Suisse canvassed top private equity players, sovereign wealth funds and other trading houses about a potential deal. They found little interest from potential suitors for a minority stake in LDC and some baulked at valuations, Bloomberg reported at the time.

Then, suddenly, the tables turned in Ms Louis-Dreyfus's favour.

The coronavirus pandemic spurred sudden and enthusiastic appeals by governments to secure long-term food supplies for citizens. China went on a buying spree for crop commodities, driving up prices for products including wheat, corn and soybeans, and other governments around the world have also increased purchases.

The increased volatility has helped boost profits for crop traders, while the growing emphasis on food security would have made the LDC investment even more appealing to Abu Dhabi's ADQ. As part of the deal, the two sides have signed a long-term supply agreement for the sale of agri-commodities to the United Arab Emirates.

If completed, the deal with ADQ should resolve much of LDC's and Ms Louis-Dreyfus's debt issues. The company said on Wednesday that at least US$800 million of the proceeds from the sale would be used to help repay a US$1.05 billion loan made by the trading house to its parent company.

If the deal were to be priced at LDC's book value, that would leave more than US$1 billion for her to repay other debt, according to Bloomberg calculations.

Yet after a decade of battles, Ms Louis-Dreyfus would end up controlling a roughly 55 per cent stake in the trading house, about the same amount she controlled in 2009, when she owned just over half of the business.

But with a big difference: today the commodity trading business is, effectively, the only remaining asset in her empire, as she has sold most of the other profitable business units of the holding company over the last decade.

"My main goal is to ensure the long-term survival of the company, and the name of the company," she said in 2012. She did achieve her objective - at an enormous cost. BLOOMBERG

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