EXCLUSIVE - Cargill close to agreeing purchase of ADM's cocoa unit - sources

Reuters

By Olivia Oran and Ange Aboa

NEW YORK (Reuters) - Cargill Inc (CARG.UL), one of the world's leading cocoa traders, is in the final stages of a deal to buy Archer Daniels Midland Co's (NYS:ADM - News) cocoa business, sources familiar with the situation said, creating a global giant.

The two rivals are hammering out the final details of the deal, said the sources, paving the way to the second major takeover this year in an industry that is set to be dominated by two firms. The timing of an official announcement is not known but could be made within days, the sources said.

Financial details of the deal were not clear, although some sources had said this summer that the unit may be worth as much as $2 billion.

Cargill was long believed to be one of only a handful of companies with the expertise and focus on the niche cocoa business to buy ADM's business, which spans Africa, Asia and the United States. The U.S.-based agribusiness firm had begun conducting due diligence earlier this year.

ADM started looking for potential suitors for the business late last year, sources have told Reuters, and the company announced it was in discussions about a possible sale in June.

Combining two of the world's top cocoa merchants and bean grinders would create a company big enough to compete with Zurich-based Barry Callebaut (BARN.S), the world's largest maker of industrial chocolate products.

An official at ADM declined to comment and Cargill would not comment beyond a short statement that said the privately held company continues to assess initiatives.

"We will communicate as and when there is anything definitive," a Cargill official said in an email on Tuesday.

The sale will increase Cargill's stronghold in the market already dominated by just a handful of firms and marking the exit of one of the industry's biggest players.

In July, Barry Callebaut sealed its $860 million acquisition of the cocoa ingredients division of Petra Foods (PEFO.SI).

Cargill beat out smaller rivals who were interested in picking up individual assets, but resisted buying the whole business, three sources familiar with the matter said.

Some analysts and bankers have cautioned that competition concerns would arise, particularly in Ivory Coast and Ghana, the world's top two growers, where both companies own processing plants.

ADM, Cargill and Barry Callebaut account for as much as 40 percent of world cocoa bean grinding capacity and also dominate exports from the top producing nations, according to a United Nations report on the global cocoa industry from 2008.

Just 10 companies account for two-thirds of global grinding, the report said.

GRAINS VS COCOA

For ADM, the departure from cocoa would cement a shift towards the grains sector as it finalizes its $3 billion takeover of GrainCorp (GNC.AX), the largest bulk grain handler on Australia's east coast.

ADM also wants to cut its exposure to reduced profit margins that are resulting from rising cocoa processing capacity, traders said.

Cargill, which runs cocoa plants in No. 1 growing region West Africa, Brazil, Indonesia and in major consuming countries in Europe, has instead invested in the sector, betting on rising long-term demand as consumers in emerging markets develop a taste for chocolate.

It bought German cocoa grinder Kakao Verarbeitung Berlin in 2011 and in May began building a $100 million cocoa processing facility in Indonesia.

ADM has cocoa processing facilities in the United States, Ivory Coast, Ghana, Singapore and Brazil. (Writing by Josephine Mason in New York; Additional reporting by Marcy Nicholson in New York; Editing by Ryan Woo)

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