In an effort to expand its Corn Processing segment, Archer Daniels Midland Company ADM has agreed to buy some of the assets of its 50-50 joint venture with Tate & Lyle, Eaststarch C.V.
Formed in 1992, the main focus of Eaststarch is on corn sweeteners and starches. Under the joint venture, Archer Daniels and Tate & Lyle jointly own three corn wet mills, one each in Slovakia, Bulgaria and Turkey. Additionally, both companies own a 50% stake in a wet mill in Hungary.
As part of the aforementioned agreement, Archer Daniels will acquire full ownership of two corn wet mills in Bulgaria and Turkey, along with the 50% stake in the wet mill in Hungary. For this, it will pay €240 million in cash and transfer the ownership rights of the corn wet mill in Slovakia to Tate & Lyle.
Further, as a part of the deal, Archer Daniels has agreed to supply crystalline fructose from the Turkey facility to Tate & Lyle. Also, Tate & Lyle has decided to make Archer Daniels the exclusive agent to sell liquid sweeteners and industrial starches produced by its EU plants. Archer Daniels expects to close the transaction by this summer, subject to regulatory approvals.
Archer Daniels’ management expects new opportunities to open up in the European sweetener market as the sugar production quotas in the EU come to an end. This will lift the artificial cap on cereal-based sweeteners, hence, improving the European demand for sweeteners.
With the acquisition of these corn assets from Eaststarch, Archer Daniels expects to cater to the growing demand for sweeteners, and also enhance its capability to satisfy the increasing demand for Starch in Europe. The addition of these assets is expected to improve Archer Daniels’ global daily grind capacity for corn by 7.5% to nearly 3 million bushels per day.
Together, the Bulgaria, Turkey and Hungary facilities make for a daily grind capacity of nearly 200,000 bushels. While these facilities primarily produce sweeteners and starches, the Hungary facility also produces ethanol for fuel, beverage and industrial uses.
Archer Daniels has been strategically undertaking steps to manage its business portfolio, as evident from its actions involving the smooth integration of the WILD Flavors acquisition, the divestment of its South American fertilizer business and agreements to sell its global cocoa business to Olam and chocolate business to Cargill.
These are likely to help the company in realizing value from its businesses and invest the same in the best possible resources to enhance returns and minimize earnings volatility.
Archer Daniels currently holds a Zacks Rank #3 (Hold). Better-ranked stocks in the same sector include Amira Nature Foods Ltd. ANFI with a Zacks Rank #1 (Strong Buy) and Adecoagro S.A. AGRO carrying a Zacks Rank #2 (Buy). Another stock worth considering in the broader consumer staples sector is Monster Beverage Corp. MNST with a Zacks Rank #1.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
Be the first to comment