Cargill Acquires Cerestar Expanding Global Starch Share


To boost its global position in starch, Cargill Inc. has agreed to buy Montedison's 56 percent share in Cerestar, a global manufacturer of starches and starch derivatives based in France, for $29.87 per share or $428 million. After the acquisition, Cargill will then file a tender offer to acquire the remaining 44 percent of Cerestar's 25.6 million shares that are publicly held. In total, the Cargill offer values Cerestar at $1.14 billion, which includes the assumption of $416 million in debt. Cerestar generated sales of $1.56 billion last year.

The deal will expand Cargill's share in the global starch industry from 13 percent to 21 percent in terms of total global production. According to industry sources, Cerestar holds 5 percent of the starch market in the Nafta region (the US, Canada and Mexico), and Cargill, the largest producer, accounts for 24 percent. In Europe, Cerestar controls 27 percent of the market while Cargill accounts for 7 percent of the starch output.

The acquisition will also add a number of new specialty food products and production capabilities to Cargill's starch products portfolio, according to a Cargill official. "Cargill's and Cerestar's starch operations are extremely complementary, and we hope to leverage the expertise of each company to deliver products and services that help customers across the world," says the official.

Analysts applaud the acquisition, especially for its potential impact on the high fructose corn sweetener (HFCS) market. HFCS is the largest starch derivative. It uses more than 9 million tons of starch in the Nafta region, mostly for the drinks industry.

"This is good news with respect to the outlook of HFCS pricing in 2002," says Prudential Securities analyst Jeffrey Kanter. "Cerestar has the history of trying to buy market share by pricing cheaply, thus upsetting the entire HFCS market. But under Cargill, this should not be the case anymore."

Mr. Kanter expects Cargill to close Cerestar's plants in Indiana and Ala-bama, and convert its Texas plant to ethanol, further tightening the HFCS market. "All three plants are nowhere near major corn supplies, making them relatively uncompetitive in our view. However, the Texas plant, if it would be converted to ethanol, will be the closest ethanol production plant to the California market, where most of ethanol's growth has been coming from," says Mr. Kanter.