In a strategic move to use its resources in more profitable
areas, agri-business giant
Archer Daniels Midland Company
) has recently sold its 23% stake and other interests back to
Mexican Corn Flour producer,
Gruma S.A.B. de CV
The deal fetched Archer Daniels $450 million, as well as an
additional amount - up to $60 million - over the next 42 months
on the fulfillment of certain conditions.
The company has been looking to expand its global operations
while managing its portfolio and this is reflected in its recent
bid for Australia-based GrainCorp Limited. Although GrainCorp
rejected the takeover bid, we expect Archer Daniels to offer
GrainCorp a higher price next time.
Archer Daniels' interest in the deal also coincides with its
strategy of expanding Agricultural Services and Oilseeds
businesses across the globe by investing in key supply areas
beyond national borders. Apart from solidifying its global
footprint in the key agricultural regions through acquisitions
and joint ventures, the buyout is expected to help the company
ease the financial constraints as GrainCorp is a well-managed
We believe that Archer Daniels' continuous focus on enhancing
its processing capabilities and global footprint through
strategic acquisitions and joint ventures bodes well for future
growth. Moreover, it is one of the leading players in the global
food processing industry and commands a massive network of more
than 680 processing and sourcing facilities and 27,000 vehicles
operating across the Americas, Europe and Asia for transportation
of agricultural commodities.
This massive scale provides a strong competitive advantage to
the company and strengthens its well-established position in the
However, we remain slightly cautious about the stock as the
prices of raw materials may rise in the near term due to the
decline in U.S. crop production, which may hurt the company's
margins. Moreover, better-than-expected sugar production in
Brazil will benefit sugar-based ethanol producers and adversely
affect the demand for Archer Daniels' corn-based ethanol.
We maintain our long-term Neutral recommendation on the stock.
The company carries a Zacks #3 Rank, implying a short-term Hold
Currently, Archer Daniels has 30,000 workers around the world
and it runs around 270 processing plants and 420 crop procurement
facilities. The company's prime competitors include Cargill Inc.,
Tyson Foods Inc.
) and Corn Products International Inc.
ARCHER DANIELS (ADM): Free Stock Analysis
BUNGE LTD (BG): Free Stock Analysis Report
GRUMA SA-ADR B (GMK): Free Stock Analysis
TYSON FOODS A (TSN): Free Stock Analysis
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