By Jason Simpkins
Associate Editor
Bunge Ltd. (BG), fertilizer and oilseed producer, said it will buy Corn Products International Inc. (CPO) for $4.4 billion, or $56 a share, a 31% premium to its Friday closing price.
The purchase will help Bunge expand its product line to include Corn Products' starches, syrups and sweeteners.
The deal will help Bunge diversify its sources of revenue with a "solid cash-flow business," Chief Executive Alberto Weissar told Reuters. Weissar expects the deal to be closed in the fourth quarter of 2008 with a bump in earnings coming as soon as late 2009 or early 2010.
The deal comes at a time when corn prices are soaring amid a run-up in global demand. Corn prices have surged about 75% over the past year and 17.5% since early June when flooding throughout the Midwest lowered the outlook for this year's crop yield.
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By broadening its operations and hosting a more diverse product line, Bunge is attempting erect a barrier between itself and soaring commodities prices. The deal will also help the company maintain a healthy cash flow, as the global market for starches and sweeteners alone is growing by approximately 5% each year, according to the Chicago Tribune.
Corn Products clientele includes some of the biggest beer and food makers in the world. A deal with Bunge gives it the platform to expand its customer base as well as its own operations.
"This merger puts us in a situation where in almost any spot in the world, we can handle the larger customers," Corn Products Chairman and Chief Executive Officer Sam Scott said in a statement.
They estimate annual cost savings of $100 to $120 million, primarily through the elimination of duplicate procurement and logistical expenses. Analysts agree that the deal makes sense.
"Our first take is that this is a good deal for both companies," Citibank analyst David Driscoll said in a note to investors. "Corn Products gets a substantial premium to its prior closing price ... and Bunge uses its very strong stock as its currency to do the deal."
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Ag products biz Bunge buying Corn Products for $4.4B