By Jacob Bunge
Archer Daniels Midland Co. said Monday it agreed to sell its
global cocoa business for $1.3 billion, as the U.S. agribusiness
giant looks to focus on businesses it deems more profitable.
The deal with rival commodity merchant Olam International Ltd.
will mean ADM's exit from the cocoa business, a volatile sector
where concentrated production can create sharp price swings. It
follows a separate deal announced in September to sell ADM's
chocolate-processing operations to agricultural conglomerate
Cargill Inc. for $440 million.
The latest deal also vaults Singapore-based Olam into the top
echelon of global cocoa processors, adding eight factories with
600,000 metric tons of annual production capacity and about 1,500
ADM employees.
ADM buys grains, oilseeds and other commodities from farmers to
process into ingredients and to sell to food makers. The
Chicago-based company has been refocusing on higher-margin
businesses including flavorings and specialty ingredients. ADM
struck a deal in July to acquire Wild Flavors GmbH for $3 billion
in ADM's biggest-ever acquisition.
Patricia Woertz, ADM's chief executive, said selling the cocoa
business would help ADM "create shareholder value by improving
returns and dampening the volatility of our earnings."
For Olam, a trader of nuts and spices and already one of the
world's biggest suppliers of cocoa beans, the deal "represents a
transformational opportunity for Olam Cocoa to become an integrated
global leader," Chief Executive Sunny Verghese said.
Olam said the deal will lift its cocoa-processing capacity to
700,000 metric tons, ranking it among the top-three cocoa
processors globally. Olam expects the deal to nearly double
earnings for its confectionary and beverage ingredients
division.
ADM and Olam expect the deal to close in the second quarter of
2015, pending regulatory approvals.
ADM entered the cocoa business in 1997. Unlike some of the other
major commodities it trades, such as corn and soybeans, cocoa is
only grown commercially in relatively few countries in the tropics,
with about three-quarters of global production coming from West
Africa.
That means prices can be sharply affected by relatively isolated
weather or political events. Cocoa futures prices rose to a more
than three-decade high in 2011, for instance, because of an export
ban in top grower Ivory Coast in the wake of an electoral
dispute.
The sale of the cocoa-processing unit to Olam could force some
chocolate makers to rethink their sourcing. Olam is a major seller
of cocoa beans, which a variety of cocoa processors turn into
chocolate, but the sale would make them a more of a competitor.
"I tend to think we think we wouldn't do as much business with
them," said Gary Guittard, chief executive of Burlingame,
Calif.-based Guittard Chocolate Co., a cocoa processor and
chocolate maker. "That would be my knee-jerk reaction."
Leslie Josephs contributed to this article.
Write to Jacob Bunge at jacob.bunge@wsj.com
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