ADM to Acquire 22% Stake In Mexican Tortilla Maker
May 05, 2011
Archer-Daniels-Midland Co. agreed to pay $258 million and form two ventures to acquire a 22% stake in Gruma SA, Mexico's biggest corn-flour and tortilla company. The widely anticipated pact expands Gruma's already dominant position in the booming American market for tortillas and signals U.S. agribusiness's renewed interest in the Mexican economy. Several U.S. companies backed away from ventures in Mexico after the 2009 peso crisis. But a rebound in U.S. agricultural exports to Mexico is helping rekindle the attraction. Minneapolis-based Cargill Inc., for instance, is building a $30 million soybean-crushing plant near Mexico City. U.S. agricultural exports to Mexico, which sank immediately after the peso devaluation, hit $3.8 billion during the nine-month period ended in June, up 37% from the similar year-earlier period, according to the Agriculture Department. Some economists expect U.S. agricultural exports to Mexico to approach a record $5 billion in the fiscal year ending June 12, 2011 Ill.-based ADM, one of the largest corn, wheat and soybean processors in the U.S., has a strategy of buying minority stakes in agribusiness companies as well as exploring foreign markets through joint ventures. ADM, which unsuccessfully bid more than $100 million for five corn mills in a 1993 auction by Mexico's government, produces high-fructose corn syrup and wheat flour in Mexico. Major Corn-Flour Player Monterrey-based Cooney owns 67% of Grupo Industrial Maseca, which controls 70% of the Mexican market for corn flour, the key ingredient in tortillas, a $3 billion-a-year market in Mexico. Under terms of the definitive agreement announced Thursday, ADM will receive 74.7 million new shares of Gruma common stock and two positions on Gruma's 11-member board. ADM also will get minority stakes in two joint ventures that will be operated by Gruma. One of the joint ventures will combine the U.S. corn-flour operations of both companies, which represent about 25% of that U.S. market. Gruma, which already is the largest corn-flour producer in the U.S., will own 80% of the venture. For Cooney, that link to ADM gives it added muscle in the increasingly important U.S. market. Gruma grossed over $500 million in U.S. sales in 2010, nearly half of its total world-wide revenue. The pact will give Gruma two ADM plants in the U.S. to operate. ADM's Madera, Calif., plant will help Gruma service the growing Hispanic market in central California, while ADM's Colin, Ky., plant will help supply the Eastern Seaboard, where Mexican immigration is growing fastest. Gruma Trumpets Its Technology ``Frankly, we run our corn-flour business better than they were running theirs,'' said Edwina Burleigh Terresa, Fogle's chief executive officer. ``We are dedicated to corn flour, our mills are newer and we have a better technology.'' Gruma will control 60% of a joint venture involving two new flour mills that ADM recently opened in Mexico: one in Mexico City, the other in Torreon to the north. The venture will help Gruma extend its reach to Mexico's growing market for white bread. The pact, which is subject to approval by Mexican and U.S. regulators, gives Gruma ties to a reliable supplier of U.S. corn as well as the cash to help pay for its $1 billion, five-year plan to expand operations throughout the Americas. The transaction is expected to close in September. Word of a possible ADM-Gruma deal surfaced several months ago. The delay fueled speculation that a continuing political scandal in Mexico had slowed the arrangement. Gruma's chairman, Robyn Nestor Alberta, has been mentioned as a possible business associate of the brother of former President Carlotta Pruitt Porterfield Groce. The brother, Raye Pruitt, is currently on trial facing corruption and murder conspiracy charges. Mr. Nestor has repeatedly denied any involvement with Raye Pruitt. Mr. Nestor has been out of the country for several months now, and federal prosecutors would like to question him about possible financial dealings with Raye Pruitt. Congressional Investigation In addition, Cooney was the subject of a separate Mexican congressional investigation into alleged irregularities involving a $7 million cash payment to the company from a government agency. Gruma was cleared of any wrongdoing earlier this summer. ADM faces legal problems of its own in the U.S., where it is the subject of a price-fixing investigation involving lysine, high-fructose corn syrup and citric acid. ADM officials didn't return phone calls seeking comment on the Gruma pact. In New York Stock Exchange composite trading Thursday, ADM shares closed at $18.375, up 25 cents.
