January 16, 2019 / 5:57 PM / 6 months ago

Exclusive: ADM CEO says wrong time for 'monster' acquisitions

CHICAGO (Reuters) - U.S. grain merchant Archer Daniels Midland Co (ADM) has looked at buying rivals including Bunge Ltd. and dozens of other companies but decided the time is not right for “monster” acquisitions, the company’s chief executive told Reuters.

FILE PHOTO: Juan Luciano, Chairman, President and CEO of Archer Daniels Midland Company listens to testimony to the House Ways and Means Committee on tax reform on Capitol Hill in Washington, U.S., May 23, 2017. REUTERS/Joshua Roberts

ADM’s overture to Bunge last year, reported by Reuters and other media, fueled Wall Street speculation of further consolidation among the world’s major trading houses that sell, store and ship crops.

“I cannot run ADM and say Bunge is out there, oh, I never made an analysis of Bunge. Of course we do,” CEO and Chairman Juan Luciano said in a rare interview to discuss M&A strategy. He explained ADM has also analyzed other companies in the past including Cargill Inc [CARG.UL] and Louis Dreyfus Co [LOUDR.UL], the other members of the so-called ABCD group of grain traders.

Luciano declined to comment on whether ADM had formally made a bid for New York-based Bunge. ADM is pursuing growth in its nutrition business through smaller acquisitions and potential joint ventures in agricultural processing and other areas, he said.

“We feel we don’t need that monster transformational transaction,” Luciano said at ADM’S Chicago headquarters. High valuations and M&A competition are also deterrents from large acquisitions, Luciano said.

“When credit becomes tighter, we might flex our balance sheet a little bit more, when there’s a little bit less competition,” he said.

Acquiring Bunge would be “a nice optimization,” Luciano said. “But I have a lot of the things that Bunge has,” so there is “not a lot of urgency to me.”

Bunge shares fell about 2 percent after Luciano’s comments were published. ADM’s shares briefly turned positive and then traded down 0.3 percent.

Analysts have said ADM’s conservative trading strategy and diversification into flavors and nutrition helped it weather a deep slump in commodity prices better than some rivals during a global soy and corn surplus and the U.S.-China trade war.

Still, it is the only major trading company without crushing capacity in Luciano’s native Argentina, the world’s top exporter of soy meal and oil made by processing soybeans. That has increased investor expectations of ADM striking a deal with Bunge or acquiring an Argentine crushing company such as Molinos Agro.

“At the right time, we will go into Argentina,” Luciano said. He said crushing plants in Argentina were running at around 65 percent capacity and would only fall further if ADM built a new plant, limiting profit margins and further flooding the marketplace.

ADM announced on Friday the acquisition of flavors and fragrances firm Florida Chemical Company (FCC), a division of Flotek Industries, for $175 million.

    Luciano said ADM evaluates more than 50 companies each year, and added he was open to more joint ventures with competitors, like the one ADM did with privately held Cargill in Egypt. ADM does not have any JVs with Bunge, which was approached by commodity trader Glencore Plc in 2017.

“We don’t have joint ventures with Bunge, candidly, because they were in turmoil during this time,” he said.

Bunge was particularly hard hit by a global grains glut and currency issues in South America that crimped its profits before the U.S.-China trade war upended global commodities markets. Bunge spokesman Frank Mantero declined to comment, saying only “we are business as usual at Bunge.”

ADM does not have any joint ventures with Louis Dreyfus Co. either. Louis Dreyfus did not respond to a request for comment.

TRADE WAR

Luciano said he meets regularly with U.S. and Chinese officials, and believes the countries will resolve their trade war this year, though he worried about long-term tensions.

“I think the longer it lasts, the more it complicates our lives,” he said, explaining Canadian or Russian soymeal could become alternatives to the United States.

In an example of shifting trade flows, he said ADM had sold U.S. soybeans to Argentina after prices for U.S. beans plummeted when China virtually stopped buying them. Argentina, the world’s No. 3 soybean grower after Brazil, was the world’s top importer of U.S. soybeans last year.

As part of its corporate strategy in recent years, ADM has sold assets like Brazilian sugar and Bolivian oilseed ventures. ADM is “90-something percent” done with its strategic review, he said.

The company’s two U.S. dry ethanol mills have been for sale since 2016. Luciano said offers ADM had received were too low. It is holding on to its so-called wet mills, which produce more products than dry mills.

“We are a nutrition company, not a fuel company so ethanol is not our main thrust,” he said.

Additional reporting by Karl Plume in Chicago, Hugh Bronstein in Buenos Aires; Editing by David Gregorio

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