June 24, 2008

Bunge's purchase of Corn Products makes little impact on corn markets

Bunge Ltd.'s (BG) purchase of Corn Products International Inc. (CPO) should be a positive for Bunge, but caused barely a ripple in the corn markets, analysts said.

Bunge will pay US$4.8 billion for Corn Products, and the White Plains, N.Y.-based company will take on Corn Products' US$3.4 billion business as a worldwide supplier of dextrose and major regional supplier of starch, high fructose corn syrup and glucose.

The US$56-a-share, all-stock deal values Westchester, Ill.-based Corn Products at a premium of nearly 31 percent over its Friday closing price of US$42.90 a share.

"A major positive to this deal is that it strengthens Bunge's balance sheet," Credit Suisse said in a note released Monday. "Corn Products is a stable cash flow generator with US$258 million in operating cash flow in 2007 while Bunge's was negative US$411 million. Corn Products has US$414 million in debt compared to Bunge at almost US$5 billion."

Analysts said the move should have little effect on the corn market, however.

Dan Basse, president of AgResource in Chicago, said it's "pretty much business as normal."

Bunge has been an inconsistent buyer of forward contracts for farmers, and is currently buying basis only, said Mike Zuzolo, a senior analyst at Risk Management Commodities in Lafayette, Ind. He said the deal could help Bunge, which apparently "did not have the ability to fork over margins, but they still need the corn to keep processing going."

The acquisition of Corn Products, the No. 4 producer of HFC sweeter in the US, also will allow Bunge to expand into new international markets such as Pakistan, South Korea and Thailand, Credit Suisse said.

The transaction is expected to close in the fourth quarter, subject to regulatory and shareholder approvals.