ADM to Sell Stake in Mexican Company As It Bids for GrainCorp

10/24/2012| 04:09pm US/Eastern

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--ADM reaches tentative deal to sell stake in world's biggest corn tortilla maker, Gruma

--Stake could be worth $400 million

--Company on watch for credit downgrade amid bid for Australian grain handler

(Adds comment from analyst in sixth paragraph, updates share prices in 12th paragraph.)

   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 deal, 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."

Fitch analyst Judi Rossetti said Wednesday the sale of Gruma and use of the proceeds toward debt reduction would be positive, "but by itself may not be enough to avoid a rating downgrade."

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 adviser to ADM in the Gruma agreement.

ADM shares were recently down 1.2% to $26.96, and have fallen 7% since the company announced it wanted to acquire GrainCorp. Gruma shares were recently up 0.8% to MXN41.74.

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 ian.berry@dowjones.com and Anthony Harrup at anthony.harrup@dowjones.com.

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