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Archer Daniels Sells Stake in GrainCorp to Refine Portfolio

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Shares of Archer Daniels Midland Company (ADM - Free Report) have moved up nearly 1.8% since its Dec 1, 2016 announcement of selling its stake in the Australian grain handler, GrainCorp Limited. Under an underwriting agreement signed last week, Archer Daniels has agreed to sell its 19.9% stake in GrainCorp for A$387 million ($286.92 million), or A$8.53 per share. As part of the deal, the company will execute an underwritten sale of its stake in GrainCorp to an underwriter.

The transaction is in sync with the company’s portfolio management initiative, wherein it seeks to realize value and invest the same in the best possible resources to enhance returns. The company believes the sale of GrainCorp will further cut down its invested capital, which will provide increased cash to reinvest in other higher-return projects. Additionally, this highlights the company’s focus on its balance-capital allocation strategy as it expects to generate solid long-term returns by redirecting this capital.

This deal follows Archer Daniels’ three failed attempts to acquire GrainCorp. In Nov 2013, the Australian government ruled out Archer Daniels’ takeover bid for GrainCorp on grounds of national interest.

The company’s other portfolio management transactions include the recent acquisition of Amazon Flavors, which is a manufacturer of natural extracts, emulsions and compounds. Other actions taken in this connection are the buyout of Harvest Innovations; 50-50 joint venture (JV) with Quality Liquid Feeds to enhance production capabilities; the purchase of AOR N.V. – a European bottling company; the acquisition of some assets from its 50-50 JV with Tate & Lyle, Eaststarch C.V.; the Eatem Foods buyout; and smooth integration of WILD Flavors, which keeps it on track to achieve the targeted €100 million in synergies in the next three years.

Other such activities undertaken by the company include plans to sell its Brazilian sugarcane ethanol operations, the sale of its chocolate business to Cargill, its global cocoa business to Olam and 2014 divestiture of its South American fertilizer business. Moreover, the company is on track with the strategic review of its ethanol dry mills. These acquisitions and divestitures are expected to solidify the company’s portfolio, improve its knowledge, help focus on consumers and drive returns.

Shares of Archer Daniels have gained nearly 20% on a year-to-date basis. This compares favorably to the 17.3% increase recorded for the Zacks categorized Agricultural Operations industry.

Zacks Rank

Archer Daniels currently has a Zacks Rank #3 (Hold). Some better-ranked stocks in the related food industry include Campbell Soup Company (CPB - Free Report) , Ingredion Incorporated (INGR - Free Report) and Lancaster Colony Corporation (LANC - Free Report) , each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Campbell Soup, with a long-term earnings growth rate of 5.3%, has surged nearly 9.7% year to date.

Ingredion has gained nearly 23.7% year to date. Moreover, it has a long-term earnings growth rate of 11%.

Lancaster Colony has jumped 15.8% year to date. The stock has a long-term earnings growth rate of 3%.

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