ADM in talks to acquire Minnesota Corn

They are largest makers of fuel additive ethanol

May 09, 2002|By BLOOMBERG NEWS

MARSHALL, Minn. - Archer Daniels Midland Co. is in talks to buy Minnesota Corn Processors LLC, a transaction that would combine the largest U.S. makers of ethanol, a fuel additive distilled from corn.

ADM, which owns 30 percent of Minnesota Corn, and rival Cargill Inc., have been buying control of smaller grain companies weakened by heavy debt loads and four years of low commodity prices.

The acquisition would give ADM more control of the $2.48 billion market for ethanol, which is added to gasoline to reduce pollution. Ethanol demand is expected to rise by more than a third by 2004 as California phases out a competing additive. Demand would triple in 10 years under a Senate plan to require its use nationwide.

"At the right price, it would be a good fit for ADM," Christine McCracken, an analyst with Midwest Research Inc. in Los Angeles, said of Minnesota Corn. "With the weakness in the farm economy, more of these kinds of companies are going to find themselves looking to partner up with someone bigger."

ADM shares rose 32 cents, or 2.4 percent, to $13.87 yesterday. The shares are up 12 percent in a year, while the Standard & Poor's 500 index has declined 14 percent.

Minnesota Corn, a farmer-owned cooperative until it converted to a for-profit structure two years ago, had sales of $700 million last year, 80 percent from sweeteners and 20 percent from ethanol, Chief Executive Officer L. Dan Thompson said in an interview.

"ADM actually approached us," Thompson said. "If some kind of deal is going to come together, it's probably four or five weeks away," he said. "The talks began three weeks ago."

U.S. demand for ethanol, a form of alcohol usually made from corn, wheat or sugar, is expected to increase 36 percent, to 2.45 billion gallons a year, by 2004, when a ban on the use of the competing additive, methyl tertiary butyl ether, known as MTBE, takes effect in California, analysts said. MTBE is being phased out after it leaked from storage tanks and contaminated water supplies.

In March, California Gov. Gray Davis postponed implementation of the ban for a year, until January 2004, but BP PLC, Phillips Petroleum Co. and other California refiners have indicated that they will proceed with plans to switch to ethanol before the ban's effective date.

ADM, the world's largest processor of corn, soybeans and cocoa, controls 40 percent of U.S. ethanol production, according to analysts at Credit Suisse First Boston.

Marshall, Minn.-based Minnesota Corn, which processes corn at mills in Marshall and Columbus, Neb., controls about 6 percent of the market.

The transaction would also help ADM compete in the $3 billion corn sweetener market with Cargill, which surpassed Decatur, Ill.-based Archer Daniels as the dominant U.S. corn sweetener producer last month with its purchase of Cerestar, analysts said.

ADM officials could not be reached for comment.

Minnesota Corn owns 50 percent of CornProductsMCP Sweeteners LLC, a joint venture with Bedford Park, Ill.-based Corn Products International Inc. Minnesota Corn and Corn Products sell their U.S. sweetener production through CornProductsMCP.

If the acquisition is completed, ADM will then decide whether to dissolve or continue the joint venture with Corn Products, Thompson said.

In April 2001, ADM paid $154 million for control of 24 grain depots in the U.S. plains owned by Farmland Industries Inc., the largest U.S. farm cooperative.

About 300 U.S. farm cooperatives have been sold to bigger rivals or closed down in the past 3 1/2 years, according to the U.S. Agriculture Department.

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