ADM to Sell Stake in Mexican Company As It Bids for GrainCorp
10/24/2012| 12:08pm US/Eastern
By Ian Berry and Anthony Harrup
Archer Daniels Midland Co. (>> Archer Daniels Midland Company) has reached a tentative deal to sell its 23% stake in Gruma SAB (GMK, GRUMA.MX), the world's biggest corn flour and tortilla maker, to a Mexican businessman.
The deal with Fernando Chico Pardo, the chairman of a Mexican airport operator, would be worth about $400 million based on current share prices.
The planned sale comes as ADM, one of the world's largest grain trading and processing companies, is trying to buy Australia's GrainCorp Ltd. (>> GrainCorp Limited) for about $2.8 billion in an all-cash deal revealed this week.
A sale of ADM's stake in Monterrey-based Gruma could help the U.S. company raise cash to avoid a hit to its credit rating that might result from an acquisition of GrainCorp, analysts said.
Both Fitch Ratings and Standard & Poor's placed ADM on watch for a potential credit downgrade following the bid for GrainCorp. Fitch noted that financing for the bid, which has not been disclosed, "is likely to lead to substantially higher leverage, at a time when the company is already facing downward earnings pressure in key business lines."
ADM, based in Decatur, Ill., said the planned sale of its stake in Gruma is non-binding and subject to approval by both companies' boards.
Mr. Pardo is the chairman of Mexican airport operator Grupo Aeroportuario del Sureste SAB (ASR, ASUR.MX), which runs airports in Cancun and elsewhere.
Gruma's founder and chairman, Roberto Gonzalez Barrera, died in August of cancer at the age of 81.
In a filing with the Mexican stock exchange, Gruma said Mr. Pardo also expressed interest in ADM's indirect stakes in other Gruma units, including a 40% stake in Mexican wheat flour business Molinera de Mexico and a 20% stake in U.S. corn flour unit Azteca Milling. ADM said the preliminary agreement also includes these stakes.
Bank of America Merrill Lynch is acting as financial advisor to ADM in the Gruma agreement.
ADM shares were recently down 0.6% to $27.13, and have fallen 6.6% since Thursday, when news of its plans to make an all-cash takeover bid for GrainCorp emerged. Gruma shares were recently up 1.3% to MXN41.97, and are up 10.5% since Thursday.
ADM shares have struggled this year as the worst drought in decades hurt margins in its ethanol and soybean processing businesses. The purchase of GrainCorp would further diversify ADM's business and give it a foothold in the world's second-biggest wheat exporter, with easier access to Asian markets.
Write to Ian Berry at email@example.com and Anthony Harrup at firstname.lastname@example.org.
Corrections & Amplifications
This item was corrected at 17:41 GMT to reflect Gruma's shares were up 1.3% at MXN41.97, not $41.97.
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