Archer Daniels (ADM) Sells South American Fertilizer Unit - Analyst Blog

Archer Daniels Midland Company ( ADM ) has successfully completed the previously announced sale of its South American fertilizer business to The Mosaic Company ( MOS ). The company arrived at the decision to divest its fertilizer businesses in South America as the returns from these assets had fallen short of its expectations.

The transaction included Archer Daniels' four fertilizer blending units in Brazil and one in Paraguay. The deal was sealed with Archer Daniels receiving about $350 million, including $150 million in working capital.

Further, despite the sale, the contract allows Archer Daniels to purchase fertilizers from Mosaic. The company will also continue supplying fertilizers to certain customers in Brazil and Paraguay. The move is expected to increase the company's returns and help in maintaining amicable relationships with cultivators.

The closure of the deal indicates that Archer Daniels, which competes with Bunge Limited ( BG ), remains on track with its portfolio management strategy, focused on realizing value from its businesses and investing the same in best possible resources to enhance returns.

As for Mosaic, the acquisition is likely to fortify its growth plans in Brazil and attract a major portion of the company's planned internal investments in the country. Further, Archer Daniels' blending units are expected to boost the capacity of Mosaic's distribution center in the region to nearly six million tonnes per year, up from the existing capacity of four million tonnes.

Coming back to Archer Daniels' portfolio management initiative, the company agreed to sell its global cocoa business to Olam International Limited for $1.3 billion, earlier this week.

The sale will comprise Archer Daniels' cocoa processing facilities in Mississauga, Canada; Koog aan de Zaan and Wormer, Netherlands; Mannheim, Germany; Ilhéus, Brazil; Abidjan, Côte d'Ivoire; Kumasi, Ghana; and Singapore. Apart from these facilities, the company will also do away with its buying units in Brazil, Cameroon, Côte d'Ivoire, and Indonesia, along with its popular deZaan and UNICAO brands. Further, Archer Daniels will transfer about 1,550 employees, involved with its Cocoa business, to Olam as a part of the sale.

Other recent actions taken to enhance its business portfolio involve the smooth integration of Toepfer into its global operations, the divestment of its chocolate businesses, the acquisitions of WILD Flavors and Specialty Commodities, and the purchase of some assets and the processing facilities of Harrell Nut Company by its subsidiary, Golden Peanut Company LLC.

We expect Archer Daniels' consistent focus on enhancing its processing capabilities and increasing its global footprint to drive growth in the future. The company intends to invest around $1.4 billion in capital projects in 2014, the majority of which will be in high-growth markets outside the U.S.

Archer Daniels currently carries a Zacks Rank #3 (Hold). Investors interested in the related food sector may consider Aramark ( ARMK ) carrying a Zacks Rank #1 (Strong Buy).

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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