DECATUR, Ill. — Pointing to the rollercoaster-like swings in crop prices, grain processing giant Archer Daniels Midland Co. (ADM) announced last week it was buying a Swiss maker of food ingredients for $3 billion.
ADM, the nation’s largest grain processer, now will dive deep into the business of designing ingredients for products such as protein drinks and bars, a more profitable part of processing than simply dealing with grains, said Patricia Woertz, ADM’s CEO.
"The commodity business has its ups and downs," Woertz told reporters during a conference call. Developing ingredients for products that are becoming more popular with consumers is "a higher-margin, higher-growth type of business," she explained.
If approved by U.S. regulators and seven other countries, the deal would be ADM’s largest purchase.
ADM plans to buy Wild Flavors GmbH, a Swiss company founded in 1931 and a supplier of natural ingredients for non-alcoholic beverages. The company’s principal shareholder, Hans-Peter Wild, also is majority owner of juice-drink brand Capri Sun (which is not part of the ADM deal for Wild Flavors).
Woertz noted ADM has had an ingredients division, but it is limited primarily to providing items for food and products that impact their nutritional value or their texture, such as to help keep drinks creamy.
The Wild Flavors deal will allow ADM to enter the "taste" arena and emphasize products made with naturally-derived ingredients.
"(Taste) remains the biggest driver of food and beverage buying decisions, even more than price," she said.
ADM President Juan Luciano also said the supply of ingredients to food and drink companies usually is stable because customers look to have the products they buy stay consistent.
ADM had global revenue last year of approximately $90 billion. Worldwide it employs about 31,000 people, with about 4,400 based at the company’s central Illinois campus.
ADM moved its headquarters from Decatur to Chicago earlier this year, a move that came with a request of $30 million in tax incentives. Illinois lawmakers rejected that request last year, saying the state needed to review its overall policies regarding the attraction and retention of big companies.
Woertz said the combined business is expected to generate about $2.5 billion in annual revenue, with a profit margin in the "mid- to high teens" she said. The company’s grain-trading division has a profit margin in the single digits, she said.
This deal comes on the heels of Australia’s rejection of ADM’s attempt to buy Sydney-based GrainCorp Ltd. for $2.7 billion, an attempt to expand ADM’s grain-trading division. Australia rejected the deal, with regulators stating it was not in the country’s best interest.