ADM expanding reach into South America

by Teresa Acklin
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Proposed acquisition of Venezuela Foods business to include flour, durum mills


   North America's largest milling and grain company is expanding its reach into South America. In August, Archer Daniels Midland Co, Decatur, Illinois, U.S., announced it had signed a non-binding letter of intent to purchase the Venezuela Foods unit of International Multifoods Corp., Minneapolis, U.S.

   The acquisition will include 19 mills and processing facilities, including five maize mills, three rice mills, four flour mills, one spice plant, one oat mill, two bakery mix plants and three feed plants. A durum mill that had been shut down by International Multifoods earlier in the year also was included in the transaction.

   “This acquisition continues our initiative of growth in the Western Hemisphere as a producer of a broad range of food products,” said Craig L. Hamlin, president, ADM Milling Co., Leawood, Kas. “It extends our market coverage from North America, to the Caribbean and Mexico and now into South America.” Venezuela Foods, based in Caracas, is a vertically integrated food business operating in three segments: consumer foods, commercial foods and animal feeds. Besides its 19 mills, the company operates 13 agricenters, 12 warehouses, three hatcheries and 16 poultry farms and has 2,800 workers.

   Terms of the transaction were not disclosed. Net sales of Venezuela Foods were U.S.$360.7 million in fiscal 1998. Multifoods said that the unit sustained a net loss of U.S.$4.6 million during fiscal 1998 and that the business had a net book value of approximately U.S.$110 million.

   The acquisition would be ADM's first in South American flour milling. The company owns several mills in the Caribbean, including a diversified food business acquired last year in Jamaica, and in Mexico through a joint venture with Gruma S.A.

   In South America, ADM, through its Glencore business, operates 28 grain elevators and two export terminals in Brazil. Its Grace Cocoa operations comprise cocoa processing plants.

   For Multifoods, the sale would mark the company's departure from a country where it has been in business since the late 1950s. More recently, economic difficulties in Venezuela have made the business a consistent money loser, Multifoods said.

   “Though the economic environment in Venezuela remains challenging, Venezuela Foods is a solid business with good employees, strong brand recognition, leading market positions, and significant size and scale,” Gary E. Costley, Multifoods chairman and chief executive officer, said. “We believe it will be a better fit with a company, such as ADM, that has a strategic interest in Latin America, and the reach and resources to capitalize on the future market opportunities in the region.” In the face of continuing poor performance by its Venezuela food business, Multifoods earlier this year announced that it had shut down the durum mill there. The company said that at that time it would use its Economic Value Added analysis to “appropriately size the business to the current economic environment and identify profitable growth opportunities.”

   In announcing the decision to sell, Mr. Costley said that Multifoods concluded the business would not meet the company's E.V.A. objectives. “We have a core of profitable businesses whose positive results have been masked by the performance of Venezuela Foods over the last 18 months,” Mr. Costley said. “While Venezuela Foods has historically been a solid contributor to International Multifoods, we believe that shareholders will be best served by the more predictable stream of earnings from our remaining businesses.” International Multifoods said it would account for Venezuela Foods as a discontinued operation and has restated its financial results to reflect its plan to divest the Venezuelan business.

   According to a recent U.S. Department of Agriculture Attache report, Venezuela annually consumes more than 4.6 million tonnes of wheat, corn, rice and sorghum but produces a little less than half of its needs. All of its wheat consumption, about 1 million tonnes, is imported, as is 90% of its feed corn needs, also about 1 million tonnes.

   Per capita wheat consumption in Venezuela is projected by the U.S.D.A. at 52 kilograms in 1998, up 1.4 kg from 1997. Roughly one-fourth of the consumption is in pasta, and the balance is in bakery products.

   While Venezuela traditionally has imported high-quality, high-protein wheat, declining disposable income has made the population more cost conscious and millers and bakers have begun blending U.S. wheat with cheaper, lower quality wheat, the U.S.D.A. said. Cheaper brands of pasta made from 100% hard wheat or blends of durum and hard wheat have become more prevalent with new high-temperature technology.