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ADM to buy French animal nutrition business Neovia for US$1.8b
[PARIS] Archer Daniels Midland Company (ADM) is in exclusive talks to take over French animal feed business Neovia for 1.5 billion euros (S$2.47 billion) as part of the U.S. farm giant's strategy to expand in the fast-growing animal nutrition sector.
Neovia is majority owned by French cooperative group InVivo. Investment group Eurazeo also has a 17 per cent stake.
The acquisition, first reported by Reuters, would make ADM a major player in the global animal feed industry, which the company says has sales of more than US$700 billion.
ADM and rival grain merchants such as Bunge Ltd and Cargill Inc have struggled in recent years as a global oversupply of food commodities has made it tough to turn a profit on their core business: buying, processing, and selling corn, soy and wheat.
The companies have been diversifying into higher-margin sectors, such as food ingredients and aquaculture feed, to compensate for the poor returns.
"We were happy with our animal feed activities but it was too local," Pierre-Christophe Duprat, ADM's president for Europe, Middle East and Africa, told Reuters. "If we wanted to expand we needed a more global approach."
The acquisition would be ADM's second largest to date after it purchased natural food ingredients company Wild Flavors for US$3 billion in 2014. Talks about a separate takeover of Bunge stalled this year, according to sources and media reports.
ADM shares fell 1.3 per cent on Monday to close at US$45.23. Bunge shares slipped 0.6 per cent to US$69.33.
Neovia, which had sales of 1.7 billion euros (S$2.74 billion) in 2017, produces and sells a range of products related to pet care, aquaculture, livestock feed and other areas.
"If you're management and your goal is to move away from the grain merchandising operations and the volatility that comes with that, this is the way to do it at a fair price," said Seth Goldstein, equity analyst for Morningstar in Chicago.
Neovia has a limited presence in North America but a large one in Europe, Southeast Asia, and Central and South America, with 75 per cent of its sales coming from outside Western Europe.
This complements ADM's animal nutrition business, which is primarily in the United States and has growing exposure in China, according to Fitch Ratings.
ADM is the most US-focused of the major grain companies and has been trying to expand its geographic footprint.
The transaction can "serve as a platform for additional potential bolt-on acquisitions to expand the firm's geographical reach," Fitch Ratings said.
ADM would divert its feed activities into Neovia's to create a new unit, called ADM-Neovia, with combined sales approaching US$3.5 billion, Duprat said. The takeover would lead to a reorganization and a likely reduction in staff in France, he said.
ADM said the deal would offer run-rate earnings before interest, taxes, depreciation and amortization (EBITDA) synergies of about 50 million euros by the fourth full year after the transaction closes.
The target seems "adequately conservative," JP Morgan analyst Ann Duignan said.
The deal would be 100 per cent cash and is expected to be finalized in the fourth quarter of the year after a consultation process involving employee representatives and pending supervisory authority approval.
Lazard is ADM's financial adviser and Baker McKenzie its legal adviser.
InVivo, France's largest cooperative group, would use 1 billion euros expected from the sale to step up investment in new farming techniques and support acquisitions in wine, Chief Executive Thierry Blandinieres said in an interview.
In another sign ADM is seeking to diversify its portfolio, the company said on Friday it would pay 185 million pounds (S$331 million) to buy Probiotics International Limited, better known under its umbrella brand Protexin, a Britain-based maker of probiotic supplements for people and animals.