Soft commodity giant Armajaro Trading Ltd is expanding its presence in cotton with plans to buy medium-sized UK-based Plexus Cotton Ltd, sources familiar with the situation said.
Final details of the transaction are still being hammered out, but the trading giant, which is part of commodity conglomerate Armajaro Holdings, is close to a deal that will build up its nascent presence in the fiber market with a 20-year-old firm based in the world cotton hub of Liverpool.
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Armajaro, which is one of the world's leading traders of cocoa, coffee and sugar, has wooed Plexus for some time as part of its aim to diversify its agricultural commodity portfolio.
"Armajaro has been keen to do something with Plexus for some time. If it (Armajaro) can have decisive presence in a fourth agricultural commodity, it stabilizes income," a source with knowledge of the situation said.
A deal comes after its first tentative steps into the industry last year when it set up a small ginner in Ghana, where it already handles a significant portion of the West African nation's cocoa. Plexus bought a 50-percent stake in the operation last year, according to the Plexus annual report.
Plexus is in the second tier of merchants in the small but volatile industry, handling about 800,000 bales of cotton a year, according to trader estimates.
That compares with more than 1 million bales typically traded by heavyweights Louis Dreyfus Corp , Glencore International Plc , Noble Group Ltd and Olam International Ltd .
The Liverpool-based company, which reported $500 million in turnover last year, also owns farms and ginneries in Mozambique, Uganda and Malawi and operates an agency in China, the world's largest cotton producer and consumer. It also has a representative in Australia, the world's seventh largest grower.
According to early terms of a deal, Plexus chairman and owner Nick Earlam, who founded the company over 20 years ago, would stay on for at least three years and would acquire a stake in Armajaro Trading, sources said.
The company will also remain headquartered in the major northern port city of Liverpool, a traditional center for cotton shipping for more than two centuries.
"The deal is not completely finalized," one of the sources said.
Armajaro's move into cotton comes at one of the market's most tumultuous periods as trading houses, growers and textile mills who supply the high-street retailers reel from last year's unprecedented price surge and subsequent collapse.
(Reporting By Josephine Mason; Editing by M.D. Golan)