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Bunge Limited (BG)
Bunge Limited to Purcahse Corn Poducts for $4.4 Billion
Although not a common household name, Bunge Limited is a large, well-established company. In fact, it is one of the country's oldest agricultural businesses, founded in 1818, which specializes in products such as fertilizer and oilseed products. The company announced today that it has agreed to buy Corn Products International (CPO: Charts, News, Offers), another agricultural business with 100 years of experience. Corn Products, unsurprisingly, specializes in a variety of corn products including various starches and sweeteners such as corn syrup. What will be the effect of the merger of these two companies; not just on the companies themselves, but also on consumers?
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The merger seems to be a good deal for the two companies. The arrangement values Corn Products at about $4.4 billion. Corn Products investors will get $56 of Bunge stock for each share of Corn Products stock that they hold. Currently, one share of Corn Products stock is valued at approximately $53, while one share of Bunge stock is worth about $115. Corn Products stock closed at around $43 on Friday, but has risen significantly since the deal has been announced. After the deal, it's expected that Corn Products shareholders will own approximately 21% of the new company; in addition, the CEO of Bunge will keep control of the newly merged company. The market for the products manufactured by Corn Products is estimated to be growing about 5% a year, so even though Bunge is taking on over $400 million of Corn Product's debt, this deal seems to be an obvious success.
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Combining the two companies will make operations easier and cheaper for the new company, which is particularly helpful at a time when the price of corn is increasing. Just since the start of the year, corn prices have increased over 60%. Along with announcing this merger, Bunge has also announced that they are increasing its 2008 forecast to somewhere between $9.35 and $9.65, from $7.10 and $7.40. Amazingly, these numbers are their projections without taking into account the merger, which probably won't close until the fourth quarter.
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It is uncertain if this deal will have any sort of effect on consumers. Prices for goods such as corn have been skyrocketing, since it is such a staple food product (not only as a vegetable but in items such as corn syrup), and recently demand has been increasing as it is also being used as an alternative fuel source. Not to mention, many developing nations are also increasing their demand for corn. Prices are soaring, but so far they haven't increased enough to lessen the demand. Because of this, Bunge executives think they may continue to see a strong demand for corn products even as prices continue to rise. There is a chance that Bunge might be able to indirectly pass some of their financial savings from the merge on to consumers, but that won't be known for quite a while. But while there is unfortunately no clear end in sight for the rise in corn prices, it is nice for these two companies that they can find a way to work together and make improvements on their end.
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