Monday, June 23, 2008

Bunge to Buy Corn Products In $4.4 Billion Food Merger

Bunge Ltd. has agreed to acquire Corn Products International Inc. for $4.4 billion in stock, a sign that surging global demand for food is driving big agriculture to look for increased scale.

If completed, the deal would unite two of America's oldest agricultural businesses, which have a customer base that ranges from Anheuser-Busch Co. to Kellogg Co. It would also establish Bunge as a major player in finished corn products such as starches and sweeteners. Analysts expect that market to grow at an annual rate of about 5%.
Mark Green
Bunge Ltd. has operations, including this Canadian oilseed processing plant, in more than 30 countries.

Under the deal, announced Monday, Bunge, of White Plains, N.Y., would exchange each share of Corn Products, Westchester, Ill., for the equivalent of $56 in Bunge shares. The deal represents a 31% premium to Corn Products' closing share price of $42.90 on Friday and a 25% premium to the stock's average price over the last 20 trading days.

Floods in the Midwest, which have wiped out crops across the region, have put pressure on the stocks of both Corn Products and Bunge in recent days. But the share-price performance of both companies has been robust over the longer term. Bunge shares are up about 320% over the past five years, while Corn Products' stock has risen about 175%.

The transaction comes as increased demand for food in developing economies such as India and China is driving up prices for grains such as wheat, corn and soybeans. Increased demand for fuel and the diversion of some corn stocks for the production of ethanol is also having an impact. That has led to big profits for major agricultural companies, and many in the industry expect the trend to continue.

Bunge also announced Monday that it is raising its per-share earnings forecast for 2008 to a range between $9.35 and $9.65 from $7.10 and $7.40. Those figures don't factor in the effects of the Corn Products deal, which is expected to be approved by the end of the year.

Bunge, founded in 1818, is the No. 3 player in global agribusiness by revenue behind closely held market leader Cargill Inc. and Archer-Daniels-Midland Co. It will remain third after the deal, albeit it with a much stronger presence in corn.

Corn Products provides corn syrup to beverage makers including Coca-Cola Co. and also serves a number of food companies, including Kellogg Co., Unilever NV and Nestlé SA. While Bunge serves some of the same customers, its business is much broader and includes grain storage and fertilizer production.

Bunge posted revenue of $43 billion in 2007 and earnings before interest, taxes, depreciation and amortization of $2.1 billion. Corn Products posted revenue of $3.56 billion last year and Ebitda of $486 million.

Buying Corn Products will give Bunge a presence in nearly every step of the so-called corn value chain. This includes lower margin activities such as milling to higher-margin refining businesses including the manufacture of sweeteners and ingredients for personal-care products such as deodorant. After the deal, Bunge's corn-related businesses will account for about 20% of its pre-tax earnings, according to a person familiar with the matter.

Bunge said it expects that the combination will lead to annual synergies of between $100 million and $120 million. The savings will come on the commercial side, through joint sales efforts, for example, and by combining the two companies' risk-management, or hedging operations.

The deal will give Bunge a larger presence in major global markets including North America and South America. With Corn Products, Bunge will also have access to number of important Asian markets where it isn't active now, including South Korea, Thailand and Pakistan.

Bunge is paying nine times Corn Products' expected 2008 Ebitda. That is roughly in line with other recent transactions in the sector. Including debt, the deal would be valued at $4.8 billion.

The deal is expected to be accretive to Bunge's earnings in 2010. Corn Products shareholders will own about 21% of Bunge once the deal closes.