By Jason Simpkins
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