Comments on Bunge and Corn Products International Merger

Implications: It is a win-win marriage made in Brazil. The timing is perfect to take advantage of record stock prices and commodity prices, though wet corn milling might have some problems next year.

Analysis: The top management of these global companies are world class. One of the issues this merger will solve is the replacement for CPI's Sam Scott who earlier this year had announced his retirement (maybe to work in Washington for Obama?). The merger will probably wipe out the majority of CPI's corporate staff in Westchester (IL not NY), and could eventually result in a transfer of CPI's North American Division to St. Louis into the cramped BG NA space. Both companies have believed in strong regional and decentralized management so there will not be much of a cultural change. There will be considerable savings on corn origination and hedging as well as on the operations side where BG has been working diligently to reduce costs.

The timing is also perfect with both companies sporting high stock prices. BG is a young public company, with a triple digit history as a global company. It's one major purchase had to be financed, stretching it's credit at the time to the limit. This time around with a solid stock, strong outlook and good credit rating, BG will be able to grow it's business by over 20% with a stock swap.

Some major analyst today have given the deal a thumbs up today (BMO, Deutche Bank and Morgan Stanley) and even a new target for Bunge of $160. The stock is down for the first two days after the announcement as it appears the market is concerned about the mid-term outlook for the wet corn milling industry with the potential impact of record high net corn prices on contracting for next year, and the added financial stress on Bunge and its top management. At least S&P and Fitch have said they will keep their credit ratings unchanged for BG at BBB.

BG needed a fourth leg to its operations and their CEO Alberto Weiser was looking for a company in the sector that was in  value added processing. CPI was the only pure wet corn milling play and it also had a very strong US and Brazilian slant, just as BG does. BG should be able to provide the momentum on international expansion that CPI needed, in what otherwise were becoming mature markets. BG should also provide R&D leadership out of Brazil to accelerate new ingredients out of CPI. CPI will also provide BG with more balance to its processing which is heavily weighted to oilseed processing and trading right now.

It is a marriage possibly made in Brazil, given the strength of both company's Brazilian operations and top management ties to Brazil. It should prove fruitful in the long term, though the North American wet corn milling industry could be in for a difficult time next year if corn prices stay above $7 a bushel and it could be scary if the US corn crop gets hit with a hot dry spell during silking and pollination.