Corn Products to buy Akzo's National Starch division
Corn Products International Inc., a U.S. corn refiner and maker of sweeteners, agreed to acquire Akzo Nobel NV's National Starch unit for $1.3 billion in cash to add products and customers globally.
The purchase of National Starch, which makes biscuit and cake ingredients, will create $50 million in savings, Westchester-based Corn Products said today in a statement. The transaction is expected to close in the third quarter. The shares fell the most in more than a year.
The company plans to finance the transaction through cash, debt and new equity. A majority of the deal will be financed through debt, Chief Financial Officer Cheryl Beebe said during a conference call with analysts.
"There is going to be new debt and there is going to be new equity," Ian Horowitz, an analyst for Rafferty Capital Markets Inc. in New York, said in an interview. "It's going to change everyone's math around. It's not a comment on the acquisition as much as it is trying to figure out what the new company looks like."
Corn Products fell $3.93, or 11 percent, to $30.92 at 1:33 p.m. in New York Stock Exchange composite trading. The shares earlier dropped as much as 12 percent, the biggest intraday decline since April 28, 2009. Corn Products rose 19 percent this year before today.
A drop in shares one day isn't indicative of long-term shareholder value, Beebe said.
"It's one of the best strategic fits that one could hope and imagine for and accelerates the growth rate both top-line and bottom-line," Beebe said.
The acquisition will expand Corn Products' portfolio of products and reduce its reliance on sweeteners such as high- fructose corn syrup, which has received criticism from health advocates. The deal will expand Corn Products' global footprint in Europe, Asia and the Pacific Rim.
"We wanted a strategy to grow our business and we wanted to broaden our ingredient portfolio and expand our geographic scope," Chief Executive Officer Ilene Gordon said today in a telephone interview. "National Starch met all those needs."
The company may use a $1.35 billion bridge loan to finance its acquisition. JPMorgan Chase & Co. agreed to finance the 364- day senior bridge facility that pays an interest rate 2.25 percentage points more than the London interbank offered rate, Corn Products said today in a regulatory filing.
Adding the starch business will increase Corn Products' annual sales to $5 billion, Gordon said. That compares with 2009 revenue of $3.67 billion. The company may consider closing plants in regions where growth is challenging, Gordon said.
Bunge Ltd. terminated an agreement in 2008 to purchase Corn Products after the corn processor withdrew support for the all- stock deal as the offer value shrank amid the global financial crisis.
The divestiture of National Starch allows Amsterdam-based Akzo, which earmarked the business for disposal when it bought Imperial Chemical Industries in 2008, to focus on paint production. The price excludes $100 million in pension and employee benefit liabilities that it will take over from the Dutch paint maker, Akzo Nobel spokesman Tim van der Zanden said in a telephone interview.
"The divestment was expected and the price is good," KBC Securities analyst Wim Hoste said today. "Akzo is in a pretty comfortable position. There's clearly room for acquisitions and the balance sheet has become even more solid."
Akzo rose 2.1 percent to 46 euros in Amsterdam trading, the highest closing price since April 29, valuing the business at 10.7 billion euros ($13.2 billion).
Akzo, the world's biggest maker of paints, sold National Starch's adhesives and electronic-materials units to German detergent maker Henkel AG for about 2.7 billion pounds ($4 billion) at the time of the Imperial Chemical transaction.
Akzo's starch businesses had sales of $1.2 billion last year. National Starch, based in Bridgewater, New Jersey, reported earnings before interest, tax, depreciation and amortization of 78 million euros in the period.
National Starch was challenged in its paper segment because of the recession, Gordon said. Its products are used in tissues, towels and newsprint, according to the company's website.