ADM buys rest of Toepfer in portfolio rejig

Archer Daniels Midland revealed a rash of deals, including the purchase of the outstanding 20% in the struggling Toepfer trading house, in a drive to boost returns from its disparate portfolio of assets.

The US-based agricultural trader - with Bunge, Cargill and Louis Dreyfus one of the sector's big three - said that it had sold to nutrient giant Mosaic its fertilizer blending and distribution operations in Brazil and Paraguay.

The $350m sale, including $150m of working capital, comes 17 years after ADM entered the market, since when the company had "done a good job building the business", said Patricia Woertz, the ADM chief executive.

"But the lengthy value chain inherent in the fertilizer business, along with strong competition from fully integrated companies that have entered the sector, has made it difficult for this business to consistently meet our return objectives."

Rival Bunge sold its Brazilian fertilizer distribution business to Norwegian nitrogen giant Yara International in 2012, after selling its Brazilian phosphate mines to local giant Vale for $3.8bn two years before.

Cocoa split

ADM also revealed that it was modifying plans to sell its cocoa and chocolate business, reportedly worth potentially $2bn, after the breakdown of talks with an unspecified suitor, widely believed to be Cargill.

"In the end, we could not agree to an outcome that met ADM's objectives," Ms Woertz said.

One of the problems a deal with Cargill is believed to have run into is over market concentration, with a combined ADM/Cargill operation boasting 35% of the world processing market, without disposals, and with Swiss-based Barry Callebaut accounting for a further 25%.

ADM will now divide the operations, selling off the chocolate business, which has six plants in Belgium, Canada, Germany the UK and the US, while keeping the cocoa processing business.

"Given improved underlying conditions… we see a promising outlook for the cocoa press business and believe it will meet our returns objectives," Ms Woertz said.

Toepfer recovery effort

The group also unveiled the E83m purchase from Union InVivo, the French agricultural co-operative, of the outstanding 20% of the Alfred C Toepfer International, the crop trading house whose poor performance overshadowed ADM's other-strong full year results released in February.

ADM said at the time that it had launched a "significant review" of Toepfer, based in Hamburg, after a series of setbacks, ranging from "some geographic arbitrage that didn't go our way" to "some execution issues", including Argentine wheat export cancellations and the rejection by Chinese inspectors of corn import cargos.

"We fumbled and we will correct that," Juan Luciano, ADM chief operating officer, told investors then.

Ms Woertz said on Tuesday that full ownership of Toepfer, which "has an important presence in critical origination areas as well as growing destination markets", would enable ADM to "strengthen this business and fully integrate it into ADM's global origination network".

The purchase from InVivo, which exercised an option to sell out of the crop trader, was struck at the equivalent of 1.1 times Toepfer's net book value.

Portfolio revamp

She added that the moves were part of a plan to "deploy our capital where it can best improve returns".

"Each of these transactions will help ADM continue to improve returns and create shareholder value."

The group has taken a particularly pro-active role over its portfolio since in November losing its $3.1bn quest to buy Australian grain handler GrainCorp, when the deal was blocked by Canberra.

ADM shares since, while closing down 0.9% at $44.27 in New York on Tuesday, risen by some 28% since the collapse of the GrainCorp takeover, above the 16% rise in the average New York share
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