22 Apr 2014 ADM abandons sale of cocoa unit
Easter came early for the global chocolate makers this year. Just days before one of the busiest holidays for chocolate sales, Archer Daniels Midland ditched long-running efforts to sell its niche cocoa business, easing concerns that have weighted on the market for months about a possible tie-up with ADM’s closest rival.
Minneapolis-based Cargill had been in late-stage talks to buy the business, estimated to be worth about $2bn, which spans bean pressing in Abidjan in Ivory Coast to fine chocolate making in Belgium. The combined company would have been big enough to rival Swiss chocolate maker Barry Callebaut, the world’s largest industrial chocolate producer.
In the close-knit industry dominated by a handful of players, news that the ADM-Cargill deal was off the table brought relief to dealers, grinders and confectioners who had worried about erosion of their bargaining power, reports Reuters.
“A lot of people in the industry were concerned about the merger. A large merger the size of ADM/Cargill was going to have a significant impact (on) the market,” said Julio Sera, senior risk management consultant for INTL FCStone in Miami.
The combination would have created a cocoa powerhouse to challenge Barry Callebaut, and put at least half the global 4-million-ton market in the hands of two players.
In a short statement, ADM said it will now look to divest only its chocolate operations, a smaller business with six plants in Europe and North America. It plans to retain the bean processing business, maker of its premium-fetching “deZaan” cocoa powder brand.
Juan Luciano, ADM president and COO, said the cocoa business “is probably the most global” of the company’s businesses, with dispersed operations, multiple plants and many employees.
“Both parties assigned a different value,” he said. “At the end of the day, it ended up being an issue of value, as normally happens in these deals.”
He declined to specify what price ADM had sought. Cargill said it was always looking at potential investments and assessing business opportunities, but declined to comment on cocoa negotiations, reports the Financial Times.
Luciano said: “Over the last month we’ve been negotiating, we came to the conclusion that there is more value for the shareholders of ADM to proceed with this smaller transaction in chocolate.” ADM has chocolate manufacturing operations in Canada, the US, Belgium, Germany and the UK.
The move comes as ADM attempts to achieve returns on invested capital that are at least 2 percentage points above its weighted average cost of capital. Returns have fallen short of this goal.
The company’s “cocoa and other” segment had an operating loss of $33m last year, after an operating profit of $276m in 2012. While the cocoa grinding business will meet goals for investment returns, “we don’t believe the same for the chocolate business and we are divesting,” Luciano said.
ADM said it had reached an agreement to sell a fertiliser blending business in Brazil and Paraguay to Mosaic, the New York-listed crop nutrients group, for $350m.
ADM also said it would take full ownership of Alfred C Toepfer International, a Hamburg grain trading subsidiary, by acquiring the remaining 20 per cent stake it does not already own for €83m from French farming co-operative Union InVivo.
Sources: Reuters, Financial Times