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Wild Flavors deal 'hasn't emptied ADM's warchest'

Archer Daniels Midland, answering a question over its intentions towards GrainCorp, highlighted its firepower for further acquisitions even after sealing the $3.1bn purchase of flavourings and ingredients group Wild Flavors.

ADM's acquisition of Wild Flavors, unveiled on Monday, is one of the agricultural commodity giant's biggest takeovers, dwarfing even than the group's – failed - purchase last year of Australian grain handler GrainCorp.

GrainCorp agreed a Aus$2.8bn ($2.55bn) takeover by ADM last year, but the deal was scuppered by Australia's government, which objected on grounds that the tie-up, at the time, risked undermining the growth of competition in the country's grain handling industry.

Ray Young, the ADM chief financial officer, on Monday told investors said that the group retained the "financial flexibility to engage in other strategic alternatives" even after swallowing German-based Wild Flavors.

'A lot of cash'

Michael Piken, analyst at Cleveland Research Company, asked ADM representatives at a conference fall what the Wild Flacors deal means "for maybe some of the other growth initiatives you've discussed, specifically, essentially [if the] Graincorp opportunity became available again".

Mr Young said that ADM retained a "very strong" balance sheet after Monday's purchase, which was expected to leave its credit rating unchanged.

Besides itself generating "a lot of cash", ADM, one of the big four ag commodity traders with Bunge, Cargill and Louis Dreyfus, is set for a windfall from lower crop prices, which mean that inventories tie up less funds.

"We expect that the low commodity price environment to continue, which from a working capital perspective is actually very, very favourable from our perspective," Mr Young said.

ADM has also cut by $300m, to $900m, its target for capital expenditure this year.

'Strategic alternatives'

Furthermore, with ADM engaged in a portfolio shake-up which could see the disposal of some assets, such as the chocolate business, sales which could "also generate cash flows", the group retained elbow room for deals.

"I guess bottom line is we feel that we've got continued financial flexibility to engage in other strategic alternatives even post this particular acquisition."

While Mr Young failed to mention GrainCorp, ADM, which owns 20% of the grain handler, has retained a keen interest in links with the group.

Patricia Woertz, the ADM chief executive, said two months ago that the group's strategic interest in Australia, as a gateway for crop exports to Asia, "remains the same", and that it would, after GrainCorp fills its vacancy for a chief executive, "have the opportunity to work more closely… to find additional ways to work together and drive value".

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