UPDATED: Enhanced to include full cost information
Archer Daniels Midland Co.’s is buying WILD Flavors, the Swiss-based firm that makes natural ingredients for food and beverages, and will use that purchase as the foundation to create a fourth business unit that will include its current specialty ingredients
“ADM and WILD Flavors will create one of the leading flavor and specialty ingredient companies in the world, with sales approaching $2.5 billion and significant room to grow,” ADM Chairman and Chief Executive Patricia Woertz said in a statement announcing the deal.
The largely cash deal is valued at $3.1 billion, which includes ADM assuming about $135 million in debt.
Investors apparently liked the deal, with ADM shares up 64 cents, 1.40%, at $46.41 in midday New York trading, a six-year high.
To be named WILD Flavors and Specialty Ingredients, the structure and location of the business unit have not been determined, but WILD’s current management team will be part of the deal, Woertz said in a Monday conference call with analysts.
“We do not have a lot of overlap, so it is important that they do come along,” she said of WILD’s management.
ADM, like other commodity companies, has worked to develop or add businesses that provide higher margin and more stable returns than the core commodity operations.
“ADM is a well-respected food ingredients company and they obviously see this as a good complement to their current structure. One has to wish them luck in their endeavor,” said Bob Young, American Farm Bureau Federation’s chief economist.
The WILD Flavors unit is expected to contribute 12% of ADM’s operating profit, behind Oilseeds Processing’s 44%, Corn Processing’s 29% and Agricultural Services’ 13%. The 2% balance is by “other” sources.
“It is consistent with actions we have taken to dampen the volatility of our earnings mix,” Woertz said.
The deal, expected to be approved by the end of 2014, should add $135 million (100 million euros) in synergies to ADM in three years, of which two-thirds will be in revenue and the balance in cost benefits.
WILD has more than 3,000 global customers with expected 2014 net revenues of $1.35 (1 billion euro).