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Archer Daniels Confirms Much Rumored Deal

Zacks Equity Research

Yesterday, Archer Daniels Midland Company (ADM) finally confirmed Bloomberg’s news that the agribusiness giant is close to taking over the Switzerland-based WILD Flavors GmbH, a provider of naturally sourced flavor for foods and beverages. (Please Read: Archer Daniels at 52-Week High on Wild Flavors Buyout Buzz)

Archer Daniels yesterday announced that it has finalized the acquisition deal at an enterprise value of 2.3 billion Euros (approximately $3.1 billion) of which the company will pay 2.2 billion Euros in cash to WILD Flavors’ shareholders, Dr. Hans-Peter Wild and Kohlberg Kravis Roberts & Co. L.P (KKR). The remaining 0.1 billion Euros has been assumed as net debt. The transaction which is expected to be complete by the end of 2014 will become Archer Daniels’ biggest ever acquisition deal.

Following the company’s announcement regarding deal the shares of this prominent food processing company touched a new 52-week high of $46.72 yesterday.

Privately-held WILD Flavors is the world’s sixth largest provider of naturally sourced flavors for food and beverages with over 3,000 customers across the world. It is anticipated that the company’s revenue will reach approximately 1.0 billion in 2014. Further, WILD Flavors have manufacturing facilities across the Americas, Asia, Europe and the Middle East.

Currently, Hans-Peter Wild, son of founder Rudolf Wild, owns 65% of Wild Flavors’ stake while the remaining stake is held by KKR & Co. In 2012, the company acquired Cargill Inc.’s juice blends business and added approximately $200 million to its total revenues. Apart from this, the acquisition also sets the platform for Wild Flavors to grow its business in Asia and North America.

We believe that the transaction will facilitate Archer Daniels in diversifying its business portfolio from grain processing to provider of natural flavors for food and beverages. Moreover, the deal also fulfills the company’s target of investing over 60% of its capital expenditure toward expansion and gaining a foothold outside the U.S.

Archer Daniels, which competes with Wilmer International Ltd (WLMIY), intends to begin a new business unit called WILD Flavors and Specialty Ingredients which will include WILD Flavors businesses and the company’s own specialty ingredients. The company anticipates that the new business unit will generate revenue of $2.5 billion and displays potential to grow significantly. The acquisition is also expected to generate cost and revenue synergies of nearly 100 million Euros by the third year.

We have observed that Archer Daniels is undertaking strategic steps to manage its business portfolio, which is expected to help in realizing value from its businesses and investing the same in best possible resources to enhance returns. This is evident from the company’s recent move of vending its South American fertilizer business and acquiring the remaining 20% minority stake of Alfred C. Toepfer International from Union InVivo.

Other Stocks Worth Considering

Archer Daniels currently carries a Zacks Rank #4 (Sell). However, some better-ranked stocks in the agricultural products industry include Limoneira Co. (LMNR) and Adecoagro S.A. (AGRO) both carrying a Zacks Rank #2 (Buy).

Read the Full Research Report on ADM
Read the Full Research Report on AGRO
Read the Full Research Report on LMNR
Read the Full Research Report on WLMIY

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