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ADM sells interest in Gruma

Article-ADM sells interest in Gruma

ADM sells interest in Gruma

AS reported earlier this year, Archer Daniels Midland Co. (ADM) sold its 23% stake in Mexican tortilla and flour products manufacturer Gruma for $450 million (Feedstuffs, Oct. 29).

Headquartered in Monterrey, Mexico, Gruma is the world's largest corn flour and tortilla producer, operating 100 plants and marketing its products in more than 105 countries. The firm reported 2011 net sales of $4.1 billion.

"This is part of our ongoing portfolio management actions to redeploy capital into key strategic arenas that will help drive higher returns in the future," ADM chief financial officer Ray Young said.

When Gruma revealed ADM's plans to sell its stake in late October, those "key strategic arenas" appeared to be an acquisition of Australian grain handler GrainCorp (Feedstuffs, Oct. 29).

ADM announced on Oct. 18 that it had acquired 14.9% of GrainCorp's outstanding shares and that it wanted to acquire the firm for $11.75 (Australian) per share (Feedstuffs, Oct. 22). GrainCorp has twice rebuffed ADM's advances, saying the current offer of $12.20 "materially undervalues" GrainCorp (Feedstuffs, Dec. 17).

Even so, the potential $2.9 billion deal would represent ADM's largest acquisition in a decade. It's last major acquisition was the $622 million deal to buy Minnesota Corn Processors in 2002 (Feedstuffs, May 13, 2002).

Under the terms of the sale, Gruma paid ADM $450 million for its interest and related investments in several Gruma subsidiaries. In addition, the deal calls for an additional $60 million in future contingent payments over the next 42 months, depending on conditions like future changes in Gruma's share price.

At the annual GrainCorp shareholders meeting last Thursday, GrainCorp executives said they were essentially in the dark about ADM's intentions moving forward. Having twice been spurned by the Australian firm, ADM's best move may be to wait, as no other suitors appear to have emerged to acquire GrainCorp.

Last week, Ashok Jacob, the investment adviser of GrainCorp's previous largest shareholder Ellerston Capital, publicly criticized the company for rejecting ADM's second offer. Shareholders appeared to largely support the company, however, and shares settled slightly higher last Thursday at $12.34 (Australian).

GrainCorp may have overplayed its hand, however. With ADM currently holding a 19.9% stake in the firm, analysts believe finding other possible buyers is increasingly unlikely. GrainCorp's board may be holding out for an offer closer to $13, which might be more in line with other recent deals.

ADM's latest bid represents a figure 8.5 times GrainCorp's earnings before interest, tax, depreciation and amortization. Glencore recently paid roughly 8.8 times earnings for Canadian commodity conglomerate Viterra.


Volume:84 Issue:53

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