ADM buys Wild Flavors, expands up the food chain

Archer Daniels Midland underlined its expansion into higher-value food products with the E2.3bn ($3.1bn) purchase of Wild Flavors, extending a period of corporate activity by the agricultural commodities giant.

US-based ADM beat rival suitors reported to have included Japan's Ajinomoto, Swiss-based Givaudan and the UK's Tate & Lyle to purchase Wild Flavors, which provides flavours for the likes of cereals, confectionery, ice cream and dairy products.

The purchase comes amid a shake-up in the ingredients sector, with Germany's Syrmise in April unveiling the E1.3bn purchase of France's Diana Group, while Agrana on Friday revealed the close of an Austrian fruit preparations plant, blaming "the continuingly weak development of the market for fruit yoghurts in Europe".

ADM said that it was upbeat over the ingredients markets that it will expand into with the purchase Wild Flavors, with chief executive Patricia Woertz saying that "natural flavour and ingredients is one of the largest and fastest-growing consumer trends in both developed and emerging markets".

'Unmatched capability'

Together, ADM, which already has some ingredients operations, and Wild Flavors, which is expected to see revenues of about E1bn ($1.4bn) this year, will boast world sales approaching $2.5bn, with "significant room to grow", Ms Woertz said.

TheE2.3bn takeover, which includes E100,000 of debt, will "create an unmatched capability to respond to local consumer preferences and offer complete food solutions that taste great".

Nonetheless, the combined ingredients operation will, in sales terms, represent only a relatively small part of ADM, which takes revenues of some $90bn a year, and with Bunge, Cargill and Louis Dreyfus is one of the "ABCD" of agriculture trading.

ADM is buying Wild Flavors from Kohlberg Kravis Roberts, the US private equity firm, and Dr Hans-Peter Wild, the son of founder Rudolf Wild.

'Expand and diversify'

ADM has, like some of its rivals, and notably Cargill, sought to expand into food operations further up the food production process from commodity crops, in an effort to tap into higher margins, and reduce the impact on earnings of volatile crop prices.

In the protein industry, US meatpacking giant Tyson Foods is undertaking a similar strategy in buying Hillshire Brands, the maker of Jimmy Dean sausages.

The takeover is "consistent with our long-term strategy to diversify the crops we process and expand and diversify our product portfolio", Ms Woertz said.

"It complements the ingredient, organic-growth investments we've recently made - including our Brazil protein complex and soluble-fibre expansion in China."

The takeover, while higher priced than figures of around E1.5bn suggested earlier in the auction, "will meet our return objectives, with estimated cost and revenue synergies of E100m by year three", she said.

Activity spree

The deal is the latest in a series of corporate actions by ADM, many of which have, in fact, been aimed more at the basic commodities level.

In cocoa, ADM is attempting to sell its chocolate business, while keeping most of its bean processing operations, after failing to secure a buyer for the whole division.

In grains, the group last month completed for E83m the acquisition of the remaining 20% it did not own in Toepfer International, the German-based agricultural commodities trading house.

Last year, ADM failed in the takeover of Australian grain handler GrainCorp, after the deal was scuppered by Canberra.

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